With the S&P 500 fighting its way back to 2,000, many investors out there are convinced that the worst of the selloff is over and that it’s smooth sailing from here into 2015.
While that would certainly be nice, the bottom line is that the global economy is quite challenged right now with fears of a “triple-dip” recession in Europe, a China slowdown and general mayhem in the Middle East.
The U.S. has indeed improved, and is looking strong. But you have to wonder how long stocks can keep this up when America is just about the only bright spot in the global economy right now.
Regardless of your definition of a crash or a correction or even a “dip,” the bottom line is that losing a big chunk of change in a downturn can have serious impacts on your investment portfolio. In many ways, limiting losses is just as important as setting yourself up for big profits.
That’s especially true if you need or want an income stream via dividends.
So to help you stay safe if a correction hits, here are five of my favorite crash-proof dividend stocks to consider right now.
High Dividend Stocks to Buy — Digital Realty Trust, Inc. (DLR)
- Market Cap: $9 billion
- Dividend Yield: 5%
- YTD Returns: 37% vs. 7% for the S&P 500
- Sector: REITs
Digital Realty Trust, Inc. (DLR) is a fascinating play on 21st century technology through a big dividend payer. The company focuses on data centers and other high-tech real estate used by tenants that include powerhouses like Microsoft (MSFT) all the way down to small-time internet start-ups just making their way in the world.
However, the company is relatively insulated from tech volatility because it is just a landlord providing infrastructure to these players. And because it’s structured as an REIT, Digital Realty must deliver 90% of its taxable income back to shareholders.
Since it went public in 2004, DLR has been increasing dividends for 10 consecutive years and is a reliable player that gives you a bit of exposure to high-tech stocks but with big dividends and smaller risk.
And by the way, if the economy does start to soften, outfits like DLR that allow for outsourcing of operations are actually a plus — not a minus — to the bottom line of tech companies. After all, instead of being burdened with the big expense of manning your own server room, you can scale up or down easily using a DLR facility.
That makes Digital Realty a great recession-proof play, even with its tech focus.
High Dividend Stocks to Buy — Teva Pharmaceutical Industries Ltd. (TEVA)
- Market Cap: $53 billion
- Dividend Yield: 2.4%
- YTD Returns: 41% vs. 7% for the S&P 500
- Sector: Pharmaceuticals
Teva Pharmaceutical Industries Ltd. (TEVA) doesn’t have quite the name cache that other blue-chip drugmakers enjoy. It also isn’t a small-but-powerful biotech that’s pushing through a drug trial that might result in the next blockbuster drug.
Teva is actually quite boring, as the world’s largest manufacturer of generic medications. But considering the company doesn’t have to worry about patent protection for its treatments and instead makes up for low margins with big scale, there are fewer healthcare stocks I’d rather own in my portfolio.
With more than $20 billion in sales annually in all corners of the globe, Teva produces everything from antibiotics to over-the-counter cold cures to specialty drugs for neurological disorders.
Admittedly, there’s no breakout potential in TEVA stock because it isn’t researching new products that could deliver billions in new revenue. However, there is substantial growth ahead, both in the developed world as seniors age and need more care, and in emerging markets where middle-class consumers are increasingly finding access to prescription drugs.
With a nice dividend yield, too, TEVA stock has a lot to offer investors who are looking for solid and reliable income plays for the long term.
And given the crash-proof nature of healthcare — consumers cut back on just about any other spending before passing on prescriptions and treatment — investors worried about a correction can have confidence TEVA will hang tough.
High Dividend Stocks to Buy — NuStar Energy L.P. (NS)
- Market Cap: $4.9 billion
- Dividend Yield: 1%
- YTD Returns: 23% vs. 7% for the S&P 500
- Sector: Oil & gas services
NuStar Energy L.P. (NS) may raise some eyebrows among investors who have been watching the breakdown in energy stocks for a while now. With an oversupply of natural gas in the U.S. holding back prices and a strong dollar keeping crude oil prices low, it has been rough going for many players in this sector.
But NuStar is an MLP that doesn’t have to worry about exploration or downstream sales that could see pressure based on soft commodity prices. Instead, NuStar simply operates pipelines, storage facilities and transportation of energy products. That means cost-intensive drilling is somebody else’s problem first, and that the final sale of any products is somebody else’s problem later.
As a middleman, simply taking a toll to transport petroleum products, NuStar is insulated from the commodity prices that plague other energy stocks and also has a very reliable revenue stream to support its hefty dividend.
As with Teva, there isn’t a lot of breakout potential here. But considering the huge dividend yield on top of significant outperformance year-to-date in 2014, there are much worse places to put your money than a boring oil- and gas-service stock that simply collects fees for energy transportation.
High Dividend Stocks to Buy — Entergy Corporation (ETR)
- Market Cap: $14.8 billion
- Dividend Yield: 3.9%
- YTD Returns: 33% vs. 7% for the S&P 500
- Sector: Utilities
There are some utility stocks that have been struggling after running up a few years ago, but Entergy Corporation (ETR) has enjoyed brisk outperformance in 2014.
Utilities are an old fallback in hard times, powered by reliable revenue from customers and virtual monopolies thanks to a highly regulated space.
Entergy is the perfect example of this, with a beta of less than 0.4, meaning ETR stock is significantly less volatile than the broader market.
A big reason to be optimistic about Entergy is that the company has a big nuclear power segment, operating six plants in New York, Massachusetts, Michigan and Vermont. Nuclear power, while a bit spooky to some, is in a great position compared with coal power these days after the Obama administration has been pretty combative with Big Coal in the last few years.
If you want clean-burning power sources — and ones that are highly regulated, and therefore at minimal risk of any competition — nuclear is the way to go.
Sure, a utility stock like Entergy is very sleepy when you look at the big picture. However, if you’re in the market for a defensive investment that will protect your money in any market, you could do worse than ETR and its dividend that is about double 10-year Treasuries.
High Dividend Stocks to Buy — HCP, Inc. (HCP)
- Market Cap: $19.8 billion
- Dividend Yield: 5%
- YTD Returns: 20% vs. 7% for the S&P 500
- Sector: REITs
Similar to DLR, HCP, Inc. (HCP) is a great twist on REIT investing because it has a specific flavor of real estate that makes it particularly “crash-proof” going forward.
Broadly, U.S. healthcare stocks are one of the best long-term plays you can make for both growth and stability. Between the demographic tailwind of the aging Baby Boomer population and the rise of insurance coverage under Obamacare, there is a strong “customer base” for many health-related businesses.
HCP gives you access to this investment trend via its healthcare real estate portfolio that includes senior housing and medical offices. And, as a REIT, this high dividend stock has the mandate to deliver at least 90% of its taxable income back to shareholders.
These medical-focused tenants in HCP office parks have reliable revenue and are stable businesses, and that means reliable revenue in turn for HCP. And the big exposure HCP has to senior housing also offers a steady stream of income via the rent that seniors pay each month for these retirement communities or assisted living facilities.
HCP stock has a beta of less than 0.6, meaning it doesn’t “wiggle” much at all. This lack of volatility is a hallmark of crash-proof stocks, and when paired with the healthcare focus means that this dividend-rich REIT is a stable long-term play that you can believe in.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at [email protected] or follow him on Twitter via @JeffReevesIP.