Nasdaq bear market: 3 stocks with monster dividends you’ll regret not buying on the downside

Fasten your seatbelt, because stock market volatility is back in force!

Since the beginning of the year, the benchmark S&P500 and iconic Dow Jones Industrial Average have entered official correctional territory. Both indices lost more than 10% of their value after hitting their respective closing highs in early January.

It’s been even harder for growth-oriented companies Nasdaq Compound (^IXIC -4.17%), which has lost more than 20% of its value since hitting an all-time high in mid-November. This puts the widely followed Nasdaq in a bear market.

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Dividend stocks can be your ticket to success in a bear market

Without a doubt, bear markets can be scary. The speed and unpredictability of bearish moves can cause investors’ emotions to take over. But if history has shown anything, it’s that buying high-quality stocks during market downturns and holding those stocks for long periods of time is a lucrative strategy that works far more often than not. .

In particular, buying dividend stocks can be your golden ticket to wealth during a Nasdaq bear market.

Why dividend stocks? The best answer I can offer is that they have significantly outperformed their peers with no dividends over the long term. Nine years ago, JP Morgan Asset Management, a division of JPMorgan Chase, published a report comparing the average annual returns of non-paying dividend stocks over a 40-year period (1972-2012). Dividend stocks crushed non-payers with an average annual return of 9.5% versus 1.6%.

The fact that income stocks perform better than non-payers over long periods is no surprise. Companies that pay a regular dividend are often consistently profitable, have a proven track record, and have clear long-term growth prospects. These are just the type of businesses that should increase in value over time.

With the Nasdaq bear market weighing on virtually every sector and industry, now is a great time for investors to go shopping. What follows are three monster dividend stocks you’ll regret not buying on the downside.

Hand holding folded assortment of banknotes.

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AT&T: yield of 5.75%

The first monstrous dividend-paying stock just begging to be bought during this Nasdaq bear market decline is a company that caters to value investors: AT&T (T -2.88%).

Like most major telecommunications stocks, AT&T’s golden age of growth is long past. With lending rates near all-time lows in years, investors chose to ignore slow-growing stocks like AT&T and focus on high-growth tech and healthcare companies. But with the market falling, a company like AT&T, which can generate stable operating cash flow, becomes much more attractive.

Despite years of slow growth, AT&T has two organic catalysts on its doorstep. First, there’s the ongoing upgrade of the wireless infrastructure to support 5G. It’s been about a decade since telecom providers dramatically improved wireless download speeds. While these upgrades are expensive and time-consuming, they are likely to trigger a multi-year device replacement cycle that results in ever-increasing data consumption. Given that AT&T generates its juiciest margins from the data side of its wireless business, investing in 5G infrastructure should prove to be a smart move.

The other big catalyst for AT&T is the now complete spin-off of WarnerMedia, which then merged with Discovery to create an entirely new media entity, Discovery of Warner Bros.. The way this deal was structured resulted in AT&T receiving $40.4 billion in cash upon completion. AT&T is also cutting its quarterly payments, so the company should have no trouble reducing its debt significantly. In other words, its financial flexibility should obviously improve as a result of this agreement.

Sporting a strong 5.8% yield and valued at less than eight times Wall Street’s earnings-per-share forecast, AT&T looks like a screaming buy.

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Innovative Industrial Properties: 4.75% yield

Another monster dividend stock you’ll be kicking if you don’t buy it on the downside is the cannabis-focused real estate investment trust. Innovative industrial properties (IIPR -4.11%).

IIP, as the company is more commonly known, acquires cannabis cultivation and processing facilities with the intent of leasing these assets for long periods of time. About two weeks ago, the company had 108 properties covering 8.1 million square feet in 19 states. The last time IIP reported the weighted average duration of its leases was over 16 years. This means the company is sitting on a goldmine of operating cash flow.

While acquiring new properties is Innovative Industrial Properties’ primary means of growth, it also has a built-in organic growth component. The Company passes through inflationary rent increases each year and collects a property management fee tied to the base annual rental rate for each tenant.

But what has really helped the IIP in recent years is the failure of the US federal government to pass cannabis banking reforms. With haphazard access to basic banking services for marijuana stocks due to the herb being a federally illicit substance, IIP stepped in with its sale-leaseback program. IIP acquires properties for cash and immediately leases them to the seller for an extended period. As long as cannabis banking reform remains stalled in Congress, IPI can clean house with sale-leaseback agreements.

Innovative Industrial Properties has increased its quarterly payout by 1,067% in less than five years and is valued at only 20 times Wall Street’s forecast earnings for 2023, despite forecast sales growth of 24% next year. It is a boon for growth and income seekers.

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Broadcom: yield of 2.93%

A third monster dividend stock you’ll regret not buying during the Nasdaq bear market decline is a semiconductor solutions company Broadcom (AVGO -4.24%).

As with AT&T, Broadcom’s biggest catalyst over the next two years will be the 5G wireless revolution. This company generates the lion’s share of its revenue by producing wireless chips used in next-generation smartphones. As more consumers and businesses trade in older devices for smartphones capable of 5G download speeds, Broadcom will thrive. According to IDC, sales of 5G smartphones in the United States are expected to increase from 33.4 million units in 2020 to 153.3 million in 2025.

Investors should also be excited about Broadcom’s other sales channels. For example, it provides solutions for next-generation automobiles, as well as access and connectivity chips used in data centers. The latter is a particularly intriguing growth opportunity given that companies have moved their data to the cloud at an accelerated pace in the wake of the pandemic.

Although Broadcom does not sit at the same level of cash flow predictability as IIP, it does enjoy a historically high backlog of $14.9 billion. CEO Hock Tan noted earlier this year that his company had reserved production until 2023. Although semiconductors are a cyclical industry, this huge backlog should help boost Broadcom’s pricing power.

Since December 2010, Broadcom’s quarterly payment has increased by (drum roll) over 5,700% – not a typo! With stocks valued at around 14 times earnings for the coming year, it looks like a steal.

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