Recession and bear market worries? 3 Dividend Stocks for a Rock-Solid Portfolio

2022 has become one of the toughest years for investors in decades. The past year has seen inflation approach the highest levels in four decades, catching global central bankers off guard and reacting too late, pushing interest rates to more than decade highs. Stock indices have spent most of the year down, and things could get worse if we see continued rate hikes and a painful recession.

But investors shouldn’t be so quick to ditch stocks. It was brutal, and it could get worse. But stocks are still one of the best ways to generate long-term wealth, and selling when the market is this low has never been a winning strategy. Instead of selling in fear, do high-quality dividend stocks like Clearway Energy (CWEN -3.62%) (CWEN.A), Texas Instruments (TXN -2.67%)and Tangier factory outlets (SKT -5.10%) holdings in your portfolio, and keeping them, is a better decision.

The recession-proof power of, well, Powerful

Energy bills skyrocket as winter approaches. This is going to be painful for consumers and utilities, many of whom cannot pass on all the higher costs of the gas they burn at gasworks. However, it is another reminder why transitioning to more renewables and energy storage is a winning strategy, and why Clearway Energy should remain a winning investment. Clearway may not be a household name, but its customers – the major electric utilities – are.

Clearway’s core business is selling electricity from its wind and solar power plants to utilities under long-term contracts. It operates over 4 gigawatts (GW) of wind and solar power capacity, which generate the vast majority of its cash flow, along with a small amount of efficient natural gas. But its focus is on wind and solar: earlier this year it sold its thermal power business to KKR for $1.46 billion, and it has already deployed more than half of that to develop its wind and solar assets.

CWEN.A Dividend yield given by Y-Charts

Looking ahead, Clearway continues to build a bigger and more lucrative business. Its goal is to increase the dividend by 5% to 8% per year, and management says its recent moves should allow it to increase the payout towards the top of that range through 2026. With a yield already above 4% at recent prices, what recession-proof companies are forced to buy now.

Everyone loves a discount

About five years ago, Tanger Factory Outlets was a mess. Its balance sheet was laden with debt after growing too quickly and in less than ideal places. Fortunately, he spent years before the coronavirus pandemic is selling its worst properties and paying off debt. As a result, it was relatively lean, generating strong cash flow and had a strong balance sheet when the world – and virtually every retail store in it – was forced to close in March 2022.

As Tangier had already put her house in order, she was able to tap into her revolving credit facilities, getting plenty of money in the bank to cover expenses during the shutdown. It also opted to suspend its dividend, but the company was able to weather a one-of-a-kind event largely unscathed. Since then, it has again been able to repay that debt and has started to generate plenty of cash again as customers flood its outdoor discount malls.

Charts showing the decline in Tangier's long-term debt, and the fall in cash and short-term investments, then their rebound, since 2021.

Total long-term debt of SKT (quarterly) given by Y-Charts

It has also returned to growth. So far this year, it has added two new properties, seen occupancy near 95%, and tenant sales per square foot hit record highs. While traditional indoor malls have struggled, Tangier’s outdoor discount properties have become increasingly popular with buyers and renters. It doesn’t rely on massive anchor stores, its locations are easily repurposed, and discount shopping is attractive in any economic environment.

Moreover, the dividend is back and growing. At recent prices, investors are getting a 5.6% return, and the payout should continue to grow as management takes a more steady and methodical approach to expansion this time around.

Don’t let the bear cycle cause you to miss the mega-trend

Semiconductor stocks take a beating. After the pandemic caused a surge in demand – and also caused the supply chain rumble that destroyed the industry’s ability to meet it – we are now in a recession. Everyone needed another computer, webcam, and other solid-state items to work from home in the past couple of years. But now everyone is well equipped in this regard, and several segments that were in high demand last year are now high and dry. Add to that the economic downturn and the semiconductor industry went from boom to bust.

But tossing token stocks now is outdated thinking. The long tail trend is still strongly favorable to growth. Sure, we all have a webcam in every room now, but more and more things in our lives will need semiconductors in the years to come. Texas Instruments in particular is worth buying. The company focuses on an underappreciated niche, analog semiconductor manufacturing. It may seem like outdated technology, but analog semiconductors are essential to how high-powered semiconductors in everything from your iPhone to heavy machinery interface with the real world. Whether managing power or sending an audio, video or data signal, semiconductors from Texas Instruments are essential.

It’s also incredibly cost effective; With decades ahead of its scale construction, it has strong cost advantages and serves more than 100,000 customers globally. Chances are they already make the analog chip you need, and in many cases still make the exactly the same chip for decades at a time. At recent prices, its dividend yield is nearly 2.9%, the upper limit of its average yield over the past decade by far. It may not sound like much, but the payout has increased by 491% since 2012 and investors have seen their investment gain in value by more than sevenfold. The best time to add Texas Instruments to your portfolio is when the market is down on semiconductor stocks, like right now.

Comments are closed.