Nasdaq Bear Market: 3 High Yielding Dividend Stocks You Won’t Regret Buying

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What a difference a year makes.

Last year, the reference S&P500The biggest correction in resulted in a decline of only 5%. However, since hitting its all-time closing high in the first week of January, the widely followed index has lost up to 24% of its value.

The ride was even bumpier for tech-focused people Nasdaq Compound (^IXIC 0.00%). After its all-time high in mid-November, the Nasdaq lost up to 34% of its value. With a decline of this magnitude, the Nasdaq is firmly entrenched in a bear market.

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While significant declines in the broader market can be disconcerting and unpredictable, what is relatively certain is that they present the perfect opportunity to grow your money. Eventually, every notable drop in the major indexes was erased by a bull market.

The proverbial $64,000 question is: “Where should you invest your money?”

Dividend stocks offer a long history of outperformance

The obvious answer to this question may well be dividend stocks. Companies that pay a regular dividend are almost always profitable on a recurring basis and have been through turbulent times before. Income stocks can be boring businesses, but they are exactly the type of businesses that we expect to increase in value over time.

Dividend stocks also have a long history of outperforming stocks that don’t offer a payout. According to a 2013 report by JP Morgan Asset Management, companies that initiated and increased payouts averaged a 9.5% annual return over a four-decade period (1972-2012). By comparison, nonpayers only managed an annualized return of 1.6% over the same 40-year period.

But not all dividend stocks are equal. In an ideal world, investors generate maximum income with low risk. Unfortunately, studies have shown that risk and return tend to be correlated once high return status is achieved (a return of 4% or more). Because return is a function of payout relative to stock price, a company with a failing operating model and plummeting stock price can trick unsuspecting investors into thinking they’ve bought a machine. high-yield slot, when in reality they bought an income trap.

While high-yielding stocks certainly require additional verification from investors, some are slot machines for long-term investors. With the Nasdaq mired in a bear market, the following three high-yielding dividend stocks are companies you won’t regret buying.

Walgreens Boots Alliance: 4.53% return

The first high-income stock you won’t regret buying during the Nasdaq bear market decline is the drugstore chain Walgreens Boot Alliance (WBA -0.22%). Walgreens earns 4.5% and has increased its base annual payment in each of the past 46 years.

Healthcare stocks are a smart place to put your money to work during times of heightened volatility. No matter how the US economy or stock market performs, people will always need prescription drugs, medical devices and healthcare services. People keep getting sick because the stock market has been through a tough time. This creates a constant level of demand throughout the healthcare chain, which includes companies like Walgreens.

What’s particularly exciting about Walgreens Boots Alliance is its multipoint growth strategy designed to increase operating margins, improve its balance sheet and retain customers.

For example, Walgreens cut its annual operating expenses by more than $2 billion and sold its wholesale drug distribution business to AmerisourceBergen for $6.5 billion in June 2021. The company used $3.8 billion of this agreement to repay a term loan and reduce its outstanding debt by $3.3 billion.

At the same time Walgreens closed some doors, it opened others. It has been spending aggressively on direct-to-consumer and digitization initiatives designed to boost its organic growth rate. Additionally, it is working with VillageMD (Walgreens is a majority owner of VillageMD) to open 1,000 full-service co-located clinics in more than 30 U.S. markets by the end of 2027. The presence of on-site physicians should help encourage repeat patient visits.

With Walgreens Boots Alliance shares valued at just eight times Wall Street’s earnings forecast for this year, it looks like they have an extremely safe floor.

A small pyramid of tobacco cigarettes resting on a thin bed of cured tobacco.

Image source: Getty Images.

Philip Morris International: return of 4.87%

Speaking of safe, high-yielding dividend stocks you won’t regret buying during a Nasdaq bear market, say hello to tobacco stocks. Philip Morris International (PM -1.53%). Philip Morris is currently distributing a yield of nearly 5%.

Although tobacco stocks aren’t the growth story they were three decades ago, they can still generate consistent income and steady returns for patient investors who aren’t daunted by the idea of invest in vice stocks.

What makes Philip Morris so appealing is the geographic reach of the business. According to the company, it operates in more than 180 countries around the world. This means it has the ability to generate predictable cash flow in developed markets, while benefiting from higher organic growth rates in emerging markets where the middle class still considers tobacco a luxury. It also means that weak sales resulting from stricter tobacco laws in some developed markets may be partially or fully offset by growth in emerging markets.

Tobacco stocks are successful because they have incredible pricing power. Previous recessions in the United States and in the global economy have demonstrated that tobacco products are treated as non-discretionary assets. In simpler terms, consumers will continue to buy it, regardless of the poor performance of the economy or the increase in prices of tobacco companies.

If you need another reason to be excited about Philip Morris’ potential, consider his push for alternatives to smoking. The company’s IQOS heated tobacco system has been introduced in dozens of countries around the world, with IQOS engulfing 7.5% of the heated tobacco share in these markets. More than 30% of the company’s net sales now come from smoke-free products.

AGNC Investment Corp. : yield of 12.45%

A third high-yielding dividend stock you won’t regret buying in a Nasdaq bear market is mortgage real estate investment trust (REIT). AGNC Investment Corp. (AGNC -1.15%). AGNC is the highest yielding point on this list at almost 12.5%. The company pays a monthly dividend and has averaged double-digit returns in 12 of the past 13 years.

Mortgage REITs like AGNC seek to borrow money at the lowest possible short-term rate and use that capital to buy higher-yielding long-term assets, such as mortgage-backed securities (MBS). The greater the difference (known as “net interest margin”) between the average return on assets held by AGNC and its average borrowing rate, the more profitable it can be.

The beauty of the mortgage REIT industry is that it is highly predictable. Keeping a close eye on Fed monetary policy and the yield curve often provides all the background information investors need.

At the moment, things are looking pretty bad for AGNC and its peers. The country’s central bank is rapidly raising interest rates to rein in historically high inflation. To start, the interest rate curve has flattened, which generally leads to a reduction in the net interest margin and a decline in the short-term book values ​​of mortgage REITs.

However, this industry is a smart buy of bad news. This is because the yield curve spends most of its time steepening during endless bull markets. Additionally, as interest rates rise, AGNC’s net returns on future purchases of MBS will also rise. Sooner or later, this should result in a steady expansion of the net interest margin.

AGNC’s investment portfolio is another reason investors can buy with confidence. Approximately 97.5% of its investment assets are agency securities. The assets of the Agency are guaranteed by the federal government in the event of default. This protection allows AGNC to strategically deploy leverage to increase revenue.

Trading at a 12% discount to its tangible net book value makes AGNC a crying buy.

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