Bear markets are terrible to live through, with volatile markets often markets by swift declines and ascents as stocks chart a generally downward path. It is very hard to maintain the fortitude needed to buy and hold when Wall Street is in a deeply negative mood. This is where focusing on stocks paying dividends can help you manage your concerns.
1. PepsiCo: More than drinks
Whenever the name Pepsi comes up, the obvious next thing that invariably happens is a comparison to Coca-Cola. But that’s actually not a great comparison anymore. Yes, both companies market internationally known drink brands, but PepsiCo is so much more than a beverage company. It also owns snack food giant Frito-Lay and a host of food brands, headlined by Quaker Oats. In other words, it is far more diversified than Coca-Cola. For conservative investors that should be seen as a key selling point.
Inflation is a very real headwind for PepsiCo today, as it is for all consumer staples stocks. But the playbook from here is pretty simple, cut costs and raise prices. So far the company has been relatively successful, though it wouldn’t be surprising to see consumers eventually start to push back on price hikes. Still, it is really just a timing game as PepsiCo looks to protect its margins, a process that may require some near-term margin compression while further price hikes work through the system. So far, investors have given management the benefit of the doubt, with the stock actually higher by a couple of percent in 2022.
If, however, the bear market picks up steam and PepsiCo gets dragged down along with it, dividend investors should be ready to jump aboard. The company’s solid business foundation is the core reason for this, but don’t forget that the soda and food giant increased its dividend annually for five decades and counting. Over the past 10 years, the average annual increase has been roughly 7.5%, which is very generous for such a large company.
While PepsiCo isn’t cheap today, with its price-to-earnings and price-to-sales ratios fairly close to their five-year averages, a sharp bear-driven decline could quickly change that for patient, and astute, investors.
2. Walmart: The retail king
Walmart is a very different type of company, but one that also stands apart from the pack in terms of size and diversification. Although it is one of the world’s largest retailers, its business spans from tech gadgets to clothing to food to toiletries, and a whole lot in between. It has multiple store formats from smaller grocery stores to giant big box warehouse outlets. And it operates in countries around the world. If you had to pick just one retailer, Walmart would be a solid choice. Notably, even though rising costs are hitting earnings, Walmart is seeing solid revenue growth across its major divisions.
The stock is only down a few percentage points so far in 2022, which is a reflection of the market’s perception of the company. It has, indeed, lived up to high dividend expectations over the long term and is on the verge of hitting Dividend King status with nearly 50 years of annual dividend increases on record. If you don’t own it, now might not be the best time to jump aboard because the stock doesn’t look particularly cheap when examining things like price-to-earnings and price-to-sales ratios.
That, however, doesn’t mean that investors won’t suddenly become fearful and throw the baby out with the bathwater. Having a wish list ready for such occasions, with names like Walmart on it, will help you move counter to the market’s broader actions. In other words, if Walmart sells off sharply, as it did in the first half of 2022, you’ll want to be ready to pounce.
Rational decisions in irrational times
Fear leads investors to make bad long-term decisions. If you prepare ahead of time you can make better decisions while others are acting rashly. This is exactly why you want to keep a close eye on industry-leading names like PepsiCo and Walmart. Get to know them now, so you won’t hesitate when the market offers you a good price on these reliable dividend stocks.
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart Inc. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.
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