September saw significant daily declines in the major indices. While stocks still trade well above bear market territory, the massive rise in many key stocks since March 2020 has raised fears that a pullback will happen sooner rather than later.
However, investors tend to hold dividend-paying stocks during these times, as maintaining a constant and growing payout for an extended period tends to build confidence in a stock. Additionally, many income investors rely on the cash payments of dividend-paying stocks, making them more reluctant to sell. Considering these factors, actions such as Chevron (NYSE: CVX), Medical Property Trust (NYSE: MPW), and Verizon Communications (NYSE: VZ) can serve investors well in a tough market.
Before the pandemic, Chevron was trading around 10% below its 2014 high as energy prices had not returned to levels seen in the middle of the last decade. However, investors today have focused more on the decline which briefly wiped out more than half of its value following the closures caused by COVID-19. At that time, an unprecedented drop in consumption threatened Chevron’s free cash flow. As a result, the company issued $ 17 billion in debt to preserve its payment and fund its $ 9.4 billion acquisition of Noble Energy.
Fortunately for its investors, the stock recovered most of its lost value in the spring of 2020. In April, Chevron increased its payout for the 34th consecutive year to $ 5.36 per share per year, which is a return in 5.2% cash. Such a record is possible since most recessions or even financial crises only modestly reduce consumption.
And for all the talk of renewables, oil and gas accounts for 69% of all energy use in the United States, according to the Energy Information Administration. And oil and gas make up the bulk of Chevron’s revenue.
In the first half of 2021, these fuels enabled Chevron to generate revenue of $ 70 billion, down 6% from the $ 74 billion in the first two quarters of 2019. In addition, the $ 4.5 billion of dollars of net income generated in the first half of 2021 was insufficient. of the $ 6.9 billion reported in the first two quarters of 2019, with spending only falling 2% during that time.
Still, even with this shortfall, the $ 7.7 billion in free cash flow generated during that time allowed Chevron to cover $ 5 billion in dividend costs. Additionally, Chevron stock still trades at a 14% discount from its early 2020 level. Even if industry and stock price struggles persist for the foreseeable future, investors can buy the. share at a discount and earn a generous cash return.
Medical Property Trust
Like Chevron, Medical Properties Trust enjoys a constant stream of activity that a stock market crash is unlikely to affect. The company leases its 446 healthcare facilities to customers in nine countries. Additionally, in its largest market, the United States, the Real Estate Investment Trust (REIT) is expected to profit from the fact that 10,000 people a day will benefit from Medicare by the end of the decade, fueling demand for such benefits. properties.
In addition, it must pay at least 90% of its net income in the form of dividends to maintain its REIT status. This helps to increase his annual payout, which now stands at $ 1.12 per share. The dividend, which has increased for eight consecutive years, yields a cash return of 5.5%.
The company reported revenue of $ 745 million in the first six months of 2021, up 27% from the same period in 2020. Net profit also rose 46% over the course of the year. of this period to reach $ 278 million. The company generated $ 19 million in other income during this period, mostly from equity interests, which helped increase net income.
This increase in revenue led to $ 394 million of adjusted operating funds (AFFO) in the first half of 2021, a measure of free cash flow for REITs. With AFFO revenues, Medical Properties covered $ 311 million in dividend costs in the first six months of the year.
Additionally, the stock has risen 17% in the past year and its P / E ratio of 22 remains in line with historical averages. Given its recession-resistant business and rising payments, Medical Properties should serve investors well regardless of a stock market crash.
Verizon is another company that may be perfect for dividend investors. Consumers and businesses tend to maintain wireless and Internet services in tough times. Verizon is also expected to benefit, as advancements in 5G, artificial intelligence, virtual reality, and the Internet of Things will continue regardless of market performance.
This should support the growth of Verizon’s nascent Network as a Service (NaaS) business. This data subscription service can link and power systems including self-driving cars, advanced computer networks and remote sensors. The efficiency gains brought about by this technology should appeal to companies even if their actions face short-term challenges.
This technology has yet to lead to massive tailwind for the top and bottom lines. Revenues of $ 67 billion in the first half of 2021 were up 7% from the same period in 2020. Additionally, while revenues of $ 11 billion jumped 24% during the same period, a Lower spending and a $ 1.3 billion retirement reimbursement gain were responsible for much of the increase.
Nonetheless, the annual dividend of $ 2.56 per share has increased for the 15th year in a row, and new buyers will earn a 4.7% cash return on the payout. Additionally, while the stock has fallen 8% in the past year, the P / E ratio of 11 reduces the chances of further large stock declines. As shareholders collect dividends, Verizon could potentially rise as the tech industry turns more to NaaS.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.