Investors have gotten spoiled in the past decade. The S&P 500 Index has been on a nearly uninterrupted rally since the end of the Great Recession of 2008. Further, there have been periodic selloffs since then and the market crash in 2020 due to the coronavirus pandemic. However, even though markets have always recovered, as of June 2022, stocks have faired poorly. Fortunately, there are dividend stocks that can help survive – or at least make a buying opportunity during a stock market crash.
But investors should remember that bear markets happen, and recessions are inevitable in a cyclical economy. What is most important is that investors keep their cool when the markets take a nosedive. Investors should resist the urge to sell their stocks and continue to hold quality blue chip stocks even though it is tempting to cash out when markets are crashing.
Dividend Stocks to Survive a Stock Market Crash
These 15 stocks represent high-quality businesses that can generate strong profits and raise their dividends, even during bear markets.
1. Walmart Inc. (WMT)
Walmart is a discount retail giant, serving around 230 million customers each week. As a result, Walmart is one of the most recession-resistant businesses investors will find. Because it focuses on everyday low prices, consumers shop more at Walmart when times are tough. And for this reason, Walmart is a stock that can help investors survive a stock market crash. Also, it’s operational strength was evident in 2020 when the coronavirus pandemic wreaked havoc on the U.S. economy.
In the 2020 fourth quarter, total revenue increased 7% as comparable sales grew 8.5% year-over-year. E-commerce is a significant growth driver for Walmart, as more consumers take their shopping online. Walmart’s U.S. eCommerce revenue increased 69% in the fourth quarter.
Walmart also raised its dividend by 1.9% to a new annualized payout of $2.20 per share. Further, this was Walmart’s 48th consecutive year of dividend increases. It also approved a new $20 billion share repurchase program.
2. McDonald’s (MCD)
McDonald’s is the world’s largest publicly traded fast-food company, with about 39,000 locations in over 100 countries. Approximately 93% of the stores are independently owned and operated. Over the past few years, its accelerated franchising activity has helped boost McDonald’s profit margins and overall earnings-per-share.
McDonald’s competitive advantage is its global scale, a vast network of restaurants, well-known brand, and real estate assets.
McDonald’s has raised its dividend every year since paying its first dividend in 1976, qualifying the company as a Dividend Aristocrat. And all this having survived ~10 stock market crashes since its inception! Shares currently yield 2.2%.
For the complete list of all 65 Dividend Aristocrats, click here.
3. Hormel Foods (HRL)
Hormel Foods got founded in 1891 in Minnesota. Since that time, the company has grown into a food industry giant with nearly $10 billion in annual sales. The company sells its products in 80 countries worldwide, and a few of its core brands include Skippy, SPAM, Applegate, Justin’s, and more than 30 others.
Hormel is a member of the Dividend Kings, having increased its dividend for 55 consecutive years making it another blue chip stock proven to survive a market crash. Its impressive dividend history is due to its strong brands. According to Hormel, it has nearly 40 brands that are either #1 or #2 in their category.
4. Johnson & Johnson (JNJ)
Johnson & Johnson is a diversified health care company and a mega-cap stock with a market cap above $400 billion. J&J is a market leader in the area of pharmaceuticals (~49% of sales), medical devices (~34% of sales), and consumer products (~17% of sales). Johnson & Johnson generates annual sales of over $90 billion.
The company has built a dominant business model and has produced 8% average annual earnings-per-share growth over the past 20 years. And this growth is a key reason that it can survive a stock market crash. Furthermore, Johnson & Johnson generated over $20 billion in free cash flow last year.
Johnson & Johnson has increased its dividend for 59 consecutive years. With over 50 consecutive years of dividend increases, Johnson & Johnson is on the exclusive list of Dividend Kings. Shares currently yield 2.5%, roughly an entire percentage point above the average dividend yield of the S&P 500.
5. Lancaster Colony (LANC)
Lancaster Colony is an under-the-radar stock, but it has an awe-inspiring history. Further, Lancaster Colony has been making food products since 1969, after shifting away from housewares. The move has afforded the company some meaningful growth in the past five decades.
A few of its key brands include Marzetti, New York Brand, and Sister Schubert’s Rolls.
Lancaster Colony makes various meal accessories like croutons and bread products in frozen and non-frozen categories. It also has one of the best dividend increase streaks in the entire market, with fiscal 2021 representing the 58th consecutive year of dividend increases.
6. Atmos Energy (ATO)
Atmos Energy can trace its beginnings back to 1906 when it got formed in Texas. Since that time, it has grown organically and through mergers to a market cap above $13 billion. The company distributes and stores natural gas in eight states and serves over 3 million customers.
By operating in a stable and regulated industry, Atmos Energy can generate a return on equity of 11.5%. In addition, customer additions and rate increases provide for virtually assured revenue and earnings growth. As a result, the company has a long-term objective of 6%-8% compound annual growth in its adjusted earnings-per-share. As a result, its growth makes Atmos Energy an ideal stock to survive a stock market crash.
Shareholders naturally benefit from this growth through a rising dividend. Atmos has increased its dividend for over 30 years in a row.
7. Procter & Gamble (PG)
Procter & Gamble is a consumer staples giant with an extensive portfolio of leading brands. Some of its notable brands include Pampers, Tide, Bounty, Charmin, Gillette, Old Spice, Febreze, Crest, Oral-B, Olay, and many more. The company generated $71 billion in sales in fiscal 2020.
Procter & Gamble has paid a dividend for 130 years and increased its dividend for 64 consecutive years. Indeed, this is due in large part to the company’s ability to withstand recessions. For fiscal 2021, Procter & Gamble expects sales growth of 5% -6%. In addition, the company anticipates 8% to 10% core earnings-per-share growth from last year.
8. Bristol-Myers Squibb (BMY)
Bristol-Myers Squibb is a leading drug maker of cardiovascular and anti-cancer therapeutics, with annual revenues of about $42 billion.
The past year has seen the company transform itself due to its $74 billion acquisition of Celgene. This peer pharmaceutical giant derived almost two-thirds of its revenue from Revlimid, which treats multiple myeloma and other cancers.
Bristol-Myers Squibb generates consistent growth. For 2021, the company expects worldwide revenue growth in the high-single digits. In addition, the recently approved $2 billion share repurchase is an additional positive catalyst for earnings-per-share growth. Shares currently yield 3%.
9. American Electric Power (AEP)
American Electric Power was founded in 1906 and has evolved its business model along with changing technologies to offer customers safe, reliable, and affordable energy. It is one of the largest regulated utilities in the United States and offers electricity generation, transmission, and distribution services in 11 states. Its energy sources are coal, natural gas, renewables, and nuclear.
The company serves 5.5 million customers and has over $80 billion in assets, with 40,000 miles of transmission. AEP has paid 444 consecutive quarterly dividends on its common stock. In addition, it has paid a cash dividend on its common stock every quarter since July 1910.
10. PepsiCo (PEP)
PepsiCo is a global food and beverage company that generates over $70 billion in annual sales. It has a diversified business model that is roughly split evenly between food and beverages. The company’s major brands include Pepsi, Mountain Dew, Frito-Lay, Gatorade, Tropicana, and Quaker. PepsiCo has 23 brands that each generates at least $1 billion in annual sales.
2020 was another year of growth for PepsiCo. For 2020, revenue grew 4.8% to $70.4 billion as organic (currency-neutral) sales increased 4.3% for the whole year. Adjusted earnings-per-share totaled $5.52, which was essentially flat from 2019. PepsiCo has increased its dividend for over 40 years in a row and currently yields 3.0%.
11. Comcast Corporation (CMCSA)
Comcast Corporation is a media, communications, and entertainment conglomerate. Its operating segments include Cable Communications, NBCUniversal, Theme Parks, Broadcast TV, and Sky. Through these segments, Comcast offers high-speed Internet, video, voice, wireless, cable networks, filmed TV, and other services. Comcast generates over $100 billion in annual revenue, and the stock has a market cap above $250 billion.
Comcast is one of the largest companies in the telecommunications and entertainment industry. The cord-cutting trend is impacting the industry, but consumers still need Internet service for streaming, and Comcast has so far been able to withstand this trend through growth from its other businesses.
12. General Dynamics (GD)
General Dynamics is an aerospace & defense company that now operates four business segments: Aerospace (21% of sales), Combat Systems (19%), Marine Systems (26%), and Technologies (33%). The company makes the M1 Abrams tank, Stryker vehicle, Virginia-class submarine, Columbia-class submarine, and Gulfstream business jets. General Dynamics had revenue of nearly $38 billion last year.
The companywide backlog is at a record of $89.6 billion, and the unfunded backlog is ~$41.8 billion (the majority in Marine Systems and Technologies).
General Dynamics is an entrenched military prime contractor. It has increased its dividend for 29 years, and the stock has a 2.5% dividend yield.
13. SJW Group (SJW)
SJW Group is a water utility company that produces, purchases, stores, purifies, and distributes water to consumers and businesses in the Silicon Valley area of California and the area north of San Antonio, Texas.
Moreover, SJW Group has a small real estate division that owns and develops residential and warehouse properties in California and Tennessee. Furthermore, the company generates about $570 million in annual revenues.
A critical competitive advantage for SJW Group is that it operates in two areas, Silicon Valley and Central Texas, that have seen high levels of population growth in recent years. As a result, these areas need improved water infrastructure to serve a growing client base. In addition, SJW is a Dividend King with over 50 consecutive years of dividend growth.
14. Verizon Communications (VZ)
Verizon Communications got created by a merger between Bell Atlantic Corp and GTE Corp in June 2000. Also, Verizon is one of the largest wireless carriers in the country. Wireless contributes three-quarters of all revenues, and broadband and cable services account for about a quarter of sales. The company’s network covers ~300 million people and 98% of the U.S, as it continues its rollout of 5G service.
One of Verizon’s key competitive advantages is that it is often considered the best wireless carrier in the U.S. Indeed, it’s evidenced by the company’s wireless net additions and very low churn rate. This reliable service allows Verizon to maintain its customer base and enables the company to move customers to higher-priced plans. In addition, Verizon is also in the early stages of rolling out 5G service.
Verizon stock offers a high yield of 4%.
15. Lockheed Martin (LMT)
Lockheed Martin is the world’s largest defense company. About 60% of the company’s revenue comes from the U.S. Department of Defense, with other U.S. government agencies (10%) and international clients (30%) making up the remainder.
The company consists of four business segments: Aeronautics (~40% of sales) which produces military aircraft like the F-35, F-22, F-16and C-130; Rotary and Mission Systems (~26% sales), which houses combat ships, naval electronics, and helicopters; Missiles and Fire Control (~16% sales) which creates missile defense systems; and Space Systems (~17% sales) which produces satellites. Since Lockheed Martin’s business model isn’t reliant on the economy, it’s a stock that can help investors survive a stock market crash.
Lockheed Martin has increased its dividend for nearly 20 years in a row, and the stock yields 2.7%.
A recession is officially defined as two consecutive quarters of declining Gross Domestic Product or GDP. There have been multiple recessions in the past several decades, including particularly severe stock market crashes such as the Great Depression, or more recently, the Great Recession of 2008.
Unfortunately, many investors make a common mistake which is to sell their stocks after a market crash. It has the effect of realizing losses for investors and preventing the seller from participating in the upside once markets recover.
If an investor sells a dividend stock after a market crash, not only are they locking in their losses and missing out on the recovery, but they will also forego the incremental return provided by the dividend payments.