3 Dividend Stocks to Buy for an Extended Bear Market

According to Dow Jones Market Data, the S&P500 fell 21% in the first half of 2022. The decline represents the worst performance in the first half of a calendar year since 1970.

Many individual stocks lost well over 21% as the bear market was particularly painful for growth stock investors. watsco (BSM 0.90%), Lockheed Martin (LMT 0.83%)and Brookfield Power (BEPC 1.40%) (BEP 1.15%) are three dividend-paying stocks that can survive a prolonged bear market. Here’s what makes each a great buy now.

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A business model based on recurring revenue

Lee Samaha (Watsco): If we are heading into a long-lasting bear market, it makes sense to start looking for income-generating stocks with companies with stable end markets. That’s where heating, ventilation, air conditioning and refrigeration (HVACR) parts distributor Watsco comes in. If you have HVACR equipment in your home or office, you will be used to the need to maintain it. A service contractor is called in and when he needs parts and supplies to repair the HVACR unit, he orders them from Watsco.

It’s not a glamorous business, but that doesn’t mean Watsco can’t increase its profits significantly in the future. Backed by underlying demand security – HVACR equipment will need maintenance – Watsco has an opportunity for growth via geographic expansion and the deployment of digital technology to contractors.

The geographic expansion comes from the acquisition of small distributors in a very fragmented market. In fact, Watsco has expanded its business significantly over the years through a buy-and-build strategy. The advantages are that the smaller distributors it acquires tend to hold strong positions within local geographies.

Meanwhile, Watsco’s position as a leader in a fragmented market means it has the financial firepower to offer entrepreneurs digital platforms (an e-commerce facility to make ordering easier) to gain a competitive advantage. Currently boasting a dividend yield of 3.7%, Watsco is a good option for investors looking for income.

Low growth, but reliable

Daniel Foelber (Lockheed Martin): When it comes to pure-play defense contractors, Lockheed Martin continues to be best in class. The company is known for its aerospace division, which includes its flagship F-35 fighter jet. But aeronautics represents less than half of Lockheed’s revenues.

The company has a mix of legacy programs (like the Black Hawk and C-130 transport aircraft programs), but it also manufactures support systems, software, missile systems, satellites and leads development programs hypersonic. In short, Lockheed is positioning itself to win defense contracts in various categories while most of its competitors do not compete in multiple defense categories or have other business units outside of defense. For instance, Boeing to its commercial aircraft business. And defense is just one of the many business units of Honeywell.

Lockheed’s focus on the defense industry has its pros and cons. In times of economic contraction, this position protects Lockheed from the cyclical nature of the industrial sector. But in times of economic growth, Lockheed shares tend to underperform companies with more potential. This momentum has been evident in recent years, where Lockheed Martin stock has significantly underperformed the industrials sector and the S&P 500 before beating the market so far this year. In fact, Lockheed shares are up about 20% in the first half of the year, making it one of the best performing members of the S&P 500 outside of the energy sector.

Lockheed Martin deserves a place in the portfolios of investors looking for a solid dividend stock at a reasonable valuation whose performance is relatively insulated from the broader economy. With 20 consecutive years of dividend increases and a 2.6% yield, Lockheed Martin looks like a good dividend-paying stock to consider now.

Are you looking at this top dog when it comes to clean energy? You bark the right tree

Scott Levine (Brookfield Renewable): If you’re like other investors, you’re probably feeling helpless with the onset of the recent bear market. On the contrary, you have a lot of power. While you can’t return your holdings to their previous highs, you can fortify them with a formidable dividend stock. Therefore, a smart decision to make now is to consider Brookfield Renewable, a mainstay of renewable energy, and its forward dividend yield of 3.6% to boost your portfolio.

While oil and gas dividend stocks are highly correlated to rising and falling energy prices, Brookfield Renewable is not subject to similar ups and downs. The company enters into long-term power purchase agreements (PPAs) with its customers, which allows it to guarantee stable cash flows for years. In fact, the average length of his PPAs is around 14 years. This is beneficial because it gives management a clear view of future cash flows, allowing them to plan future capital expenditures, including dividends, appropriately.

To better put into perspective how Brookfield Renewable’s management is committed to greening shareholders back through its green power generation, consider its past performance. From 2013 to 2022, Brookfield Renewable has increased its dividend at a compound annual growth rate of 6%. Looking ahead, management also appears determined to provide ever higher distributions to shareholders, targeting annual dividend growth – for an indefinite period – of 5% to 9%.

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