Nasdaq bear market: 3 high-yielding dividend stocks you’ll regret not buying on the downside

Over the past few months, Wall Street and the investing community have been reminded that stocks can also go down.

After the strongest rebound in history from a bear market low, the three major US indices are, once again, in correction territory. The 125 year old man Dow Jones Industrial Average and reference S&P500 are lower by more than 10%, while the Nasdaq Compound has entered a bear market (i.e. a decline of at least 20%).

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While the speed of stock market declines can be frightening at times, especially for the more volatile Nasdaq Composite, history has repeatedly shown that buying high-quality stocks during corrections and bear markets is a smart decision. After all, every notable market decline in history has eventually been overshadowed by a bull rally.

The big question is: which stocks to buy on a downturn?

High-income stocks can be your golden ticket to wealth

Last week, I offered my take on a trio of growth stocks that seemed ripe for the picking. This week, I’m going to draw your attention to three high-yielding dividend stocks (meaning yields of 4% or more) that you’ll regret not buying on the downside.

Why dividend stocks? The simple answer is that they have a rich history of overperforming companies that don’t pay dividends. While recency bias would lead most people to believe that growth stocks are a better choice than dividend stocks, longer-term data has shown the opposite to be true.

A 2013 report from JP Morgan Asset Management (a division of JPMorgan Chase) compared the performance of stocks that initiated and increased their payouts over four decades (1972-2012) to stocks that did not pay a dividend. The end result was an average annual gain of 9.5% for dividend-paying stocks and a meager average annual gain of 1.6% for those that did not pay dividends.

Since dividend-paying stocks are often profitable, proven, and have transparent long-term prospects, they are exactly the type of companies we expect to rise in value over time.

With the Nasdaq firmly in a bear market, this trio of high-yielding dividend stocks is just begging to be bought.

A pharmacist holding a prescription bottle while talking with a customer.

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Walgreens Boots Alliance: 4% return

The first high-income stock you’ll blame yourself for not buying during this bear market downturn is the drugstore chain. Walgreens Boot Alliance (WBA -0.25% ). Shares of the company have fallen 20% from their peak at the start of the year.

In general, healthcare stocks are a smart place to put your money to work during uncertain times. Since we cannot control when we get sick or what illnesses we develop, there is always a constant demand for prescription drugs, medical devices and healthcare services.

But in the case of Walgreens, the company has been hit by slower foot traffic in its stores due to the pandemic. With lockdowns seeming to be a thing of the past and most of the country on the path to full reopening, the chain’s temporary underperformance is your opportunity to make big bucks on a tried and tested livelihood.

As a Walgreens Boots Alliance shareholder, I have been impressed with management’s multi-pronged turnaround strategy that emphasizes higher margins and customer retention. The company cut more than $2 billion in annual operating expenses a full year ahead of schedule. At the same time, it is also investing aggressively in digitization. By promoting direct sales to consumers, Walgreen’s should be able to sustainably boost its organic growth.

But what might be most exciting is Walgreens’ partnership and investment with VillageMD. The duo has already opened dozens of full-service clinics and plans to have more than 600 clinics in more than 30 U.S. markets by 2025. The offering of physician-staffed clinics is expected to attract repeat customers who become regulars at the company’s higher-margin pharmacy.

With a 4% return and a value of less than 10 times Wall Street’s forecast earnings for fiscal 2022, Walgreens looks like an obvious buy.

A nurse takes care of a patient in a residence for the elderly.

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Sabra Health Care REIT: 8.7% return

Speaking of obvious opportunities, income investors will likely regret not buying shares of a healthcare real estate investment trust (REIT) Sabra Healthcare REIT ( SBRA -0.50% ). Shares of the company are down more than 27% from their 52-week high.

As you can imagine, a company that owns more than 400 combined skilled nursing and senior housing facilities has not fared well during the pandemic. Seniors have proven to be particularly vulnerable to COVID-19, which sent occupancy rates plummeting at Sabra Health Care-owned facilities in 2020. This, in turn, raised the possibility that the company might not collect rent. on time, or not at all, from its tenants.

However, things have improved dramatically for the company over the past 15 months. Occupancy rates at the company’s facilities hit their lowest level more than a year ago. Additionally, the company noted in its year-end operating results that through January 2022, it had collected 99.6% of expected rents since the start of the pandemic.

Another gray cloud was recently dispelled with the announcement of an amended head lease agreement with Avalere. It operates 27 of Sabra’s facilities, and it’s the only anchor tenant that has been hit very hard by the pandemic. The new deal gives Avalere more headroom to make its lease payments, as well as the ability for Sabra to pay higher future monthly payments if Avalere’s operations boom. The key point being that Avalere is no longer a concern for Sabra or its investors.

As the United States learns to live with and manage COVID, investment may once again be focused on an aging population of baby boomers. Sabra appears perfectly positioned to continue investing to capitalize on the future needs of baby boomers for senior housing and skilled nursing care. In short, this is an 8.7% yielding stock you don’t want to pass up.

Several hundred dollar bills folded to make a house.

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AGNC Investment Corp. : yield of 11.2%

A third high-yielding dividend stock you’ll regret not buying on the downside with the Nasdaq pushing into bearish territory is AGNC Investment Corp. ( AGCN 1.30% ). AGNC has averaged double-digit returns for 12 of the past 13 years and is one of the most popular income stocks that pays its dividend monthly.

AGNC is a mortgage REIT. While the products mortgage REITs buy can be somewhat complex, the essence of the business’s operating model is that it seeks to borrow money at low, short-term rates that it can use to buy higher-yielding long-term assets, such as mortgage-backed assets. titles (MBS). The wider the spread (known as the net interest margin) between an MBS’ average net AGNC yield and what it pays on its short-term borrowings, the more profitable the business can be. .

At the moment, AGNC is facing a somewhat unfavorable scenario. Since mortgage REITs tend to be very interest rate sensitive, flattening the yield curve (i.e. narrowing the yield differential between short and term) should weigh on its net interest margin in the coming quarters.

However, there are two important things investors need to recognize. First, the yield curve is spending a lot more time steepening than flattening, which bodes well for AGNC’s patient investors. Second, the Federal Reserve’s rate hike should actually increase the AGNC’s net yields of the MBS it buys in the long run.

Also note that AGNC Investment almost exclusively buys agency assets. A security agency is backed by the federal government in the event of default. This added protection is what allows the company to prudently use leverage to increase profits.

The rule of thumb with mortgage REITs is that they generally stay close to their book value. With AGNC shares changing hands at 18% below their tangible book value, now seems like the perfect time for opportunistic investors to strike.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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