3 Bear Market Stocks for Steady Dividends

Market volatility has returned in a big way. On Monday July 20 the Dow Jones Industrial Average dropped over 700 points, only to recover by rising over 500 points the next day. For risk-averse investors, the recent volatility can be rattling. But instead of selling out of fear, investors can reduce portfolio volatility by buying quality dividend growth stocks, like the Dividend Aristocrats. We believe Procter & Gamble , McDonald's and Walmart are three Dividend Aristocrats that should outperform in a bear market. They all have recession-resistant business models, long histories of raising their dividends through recessions and above-market dividend yields. Bear Market Stock #1: Procter & Gamble Procter & Gamble is a consumer products giant with a large portfolio of leading brands. Just a few of its top brands include Pampers, Tide, Bounty, Charmin, Gillette, Febreze, Crest, and many more. P&G is a top pick for a bear market because its industry-leading brands see steady demand each year, even during recessions, which fuels the company's steady dividend payouts. In fact, P&G has paid a dividend to shareholders for over 130 years, and it has increased its dividend for the past 65 consecutive years. And the company's dividend growth has accelerated in recent years due to the company's huge brand restructuring. P&G management made the decision a few years ago to slim down by divesting multiple brands such as Duracell and many others that were no longer a part of the long-term growth plan. As a result, it has reduced its brand count by almost two-thirds, from ~170 to 65. The effect of this portfolio reshuffling is that P&G is a more efficient company, with higher margins and improved growth prospects. For example, in the most recent quarter the company grew sales by over 5%, while adjusted earnings per share increased 12.5% year over year. As the company has returned to double-digit earnings growth, it has elevated its dividend growth. In April 2021, P&G raised its dividend by 10%. In addition, Procter & Gamble maintained its fiscal 2021 guidance, anticipating 5% to 6% sales growth and 8% to 10% core EPS growth. This means 2021 will be another year of strong growth, which will lead to annual dividend increases for many years. The shares currently yield 2.5%, which is nearly double the average dividend yield of the S&P 500 Index. Bear Market Stock #2: McDonald's McDonald's is a highly recession-resistant company, as its fast-food business model could arguably benefit from economic downturns when consumers typically scale back their dining habits. In the previous major recession, dubbed the Great Recession of 2008-2009, McDonald's actually grew its EPS over the course of the recession. 2020 was a difficult year for McDonald's, as the coronavirus pandemic resulted in closures of its restaurants for an extended period. But 2021 has brought renewed growth for McDonald's, as the easing of pandemic restrictions continues throughout the year. For the 2021 first quarter, total revenue came in at $5.12 billion, representing a 9% increase from the same quarter last year. Revenue at company-owned restaurants was up 6.7%, while revenue from franchised restaurants -- which has notably higher margins -- was up 10%. EPS of $2.05 grew 40% year over year. There is plenty of growth up ahead for McDonald's. The first growth catalyst is the company's accelerated franchising activity. More than 90% of McDonald's restaurants are franchise-owned, which reduces company revenue, but expands McDonald's profit margins providing an overall boost to EPS growth. EPS will also benefit from ongoing share repurchases to reduce its share count. McDonald's competitive advantage lies in its global scale, immense network of restaurants, well-known brand and real estate assets. Indeed, the company's superior track record against numerous competitors has illustrated why these aspects are important to the company's success. McDonald's is a blue-chip dividend stock, as it has raised its dividend each year since its first payment in 1976. Even last year, McDonald's managed a 3% dividend increase, when many other restaurant stocks were cutting or suspending their dividend payouts due to the recession. With over 40 years of dividend growth and a 2.2% dividend yield, McDonald's is built to outlast any recession. Bear Market Stock #3: Walmart Walmart is arguably the most recession-resistant business an investor can find. Walmart is the discount retail giant with annual sales of nearly $560 billion. Its focus on everyday low prices is the reason behind its extremely resilient business model. When times are tough, many consumers reduce spending on discretionary items by shifting to discount retailers such as Walmart. Walmart's competitive advantage is in its enormous size as it can buy and ship product at scales no other company can rival. This allows it to operate with low prices to consumers and as more than half of its revenue comes from groceries, its recession performance is excellent. The company managed to increase earnings steadily during and after the Great Recession. 2020 was another example of Walmart's consistent results. Despite the deep recession caused by the coronavirus pandemic, Walmart grew its total sales by $35 billion, or 6.7%. The company has continued its growth in 2021. Walmart reported first-quarter earnings on May 18, and the company beat estimates for both revenue and adjusted earnings. Total revenue increased nearly 3% for the quarter, as comparable sales in the U.S. rose by 6%. Operating income soared 27% at Walmart U.S. thanks to a combination of higher revenue and operating cost leverage. E-commerce sales in the U.S. were up 37% as gains were made in all channels and made up more than half of the total comparable sales gain. Lastly, Sam's Club saw comparable sales increase 7.2% for the quarter. One of the biggest reasons for Walmart's strong growth, aside from its recession-resistance, is the company's booming digital platform. Last year, Walmart's e-commerce revenue increased 79% as shoppers flocked to digital services. Therefore, Walmart is heavily insulated against economic downturns. Walmart's steady profits no matter the economic climate, allow the company to return lots of cash to shareholders. Last year, the company increased its dividend for the 48th consecutive year, and it approved a $20 billion share repurchase.

3 Bear Market Stocks for Steady Dividends

Risk-averse investors can reduce portfolio volatility by buying quality dividend growth stocks.

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