5 Top Dividend Stocks to Buy Even During a Market Dip

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Investing in stocks during a market downturn might seem like a risky move. After all, why invest your money in assets that could be losing value?

However, history shows that buying stocks during market corrections (a drop of at least 10%) or bear markets (a drop of at least 20%) can be a smart strategy. Companies that offer dividends can make this approach even more appealing by providing steady income despite market fluctuations.

For instance, Coca-Cola (NYSE: KO), Lockheed Martin (NYSE: LMT), Waste Management (NYSE: WM), Union Pacific (NYSE: UNP), and United Parcel Service (NYSE: UPS) are robust companies known for their reliable dividends. These stocks are well-positioned to deliver consistent returns and passive income, regardless of broader market conditions.

1. Coca-Cola: A Top Dividend Pick with a Strong Track Record

Coca-Cola stands out as an exceptional dividend stock. It boasts an impressive record of paying and increasing its dividend for 62 consecutive years, earning it the title of Dividend King. Its current yield is 3%, significantly higher than the S&P 500's 1.3% and the Dow Jones Industrial Average's 1.7%.

What makes Coca-Cola especially appealing is its recession-resistant business model. With a diverse portfolio that includes soft drinks, coffee, tea, juice, sparkling water, and energy drinks, Coca-Cola offers products that people consistently buy, regardless of economic conditions.

While Coca-Cola has underperformed the market in recent years, there's optimism that the company is on the verge of a turnaround, potentially leading to increased earnings growth. This potential upside, combined with its attractive dividend, makes Coca-Cola a compelling choice for investors willing to be patient. It's also a reason why Warren Buffett’s Berkshire Hathaway has held the stock for over 30 years, affirming its status as a solid investment today.

2. Lockheed Martin: A Reliable Dividend Stock with Steady Returns

Lockheed Martin offers a different investment profile compared to Coca-Cola, but it shares a similar appeal in terms of reliable dividends. This defense contractor primarily works with the U.S. government and select allied nations, ensuring a stable and predictable revenue stream due to its consistent customer base and substantial order backlog.

Lockheed Martin's financials reflect its stability: it enjoys steady sales growth, maintains a solid operating margin, and has increased its dividend for 21 consecutive years, currently yielding 2.5%.

Despite the generally conservative nature of the defense sector, which often leads to lower valuations, Lockheed Martin's stock is reasonably priced with a price-to-earnings (P/E) ratio of 17.4, close to its 10-year median P/E of 17.8.

Overall, Lockheed Martin stands out as a dependable dividend stock, offering consistent returns regardless of broader market movements.

3. Waste Management: A Top Performer with a Reliable Dividend

Waste Management (WM) stands out as a strong performer in the dividend stock arena, currently trading near its all-time high. The company operates with a straightforward model: it handles the collection, transportation, and processing of waste and recycling materials for various customers, from residential to industrial.

WM's commitment to sustainability includes innovative projects like converting landfill gas into pipeline-quality natural gas, showing its dedication to lower-carbon initiatives.

While Waste Management tends to thrive during economic expansions due to increased waste production from industrial and commercial activities, it remains resilient during downturns. The company's revenue is bolstered by long-term contracts and an essential service that remains in demand regardless of economic conditions. Additionally, WM’s shift to fee-for-service recycling helps insulate it from fluctuations in commodity prices.

However, the stock’s valuation is a notable concern. Over the past four years, its price has more than doubled, while the dividend has only increased by about 40%. As a result, the dividend yield has fallen to 1.4%. With a forward P/E ratio of 30.5, WM is considered pricey, but it remains a solid choice for investors who can accept a higher valuation in exchange for a company that is well-positioned to handle economic volatility.

4. Union Pacific: A Stable Dividend Stock in the Railroad Industry

Union Pacific stands as a major player in North America's railroad industry, operating across the western two-thirds of the U.S. Known for its high-margin business, Union Pacific efficiently transports goods at a low cost.

While railroad stocks are generally cyclical, Union Pacific benefits from its position in an oligopoly with high barriers to entry. Unlike other industries with direct competition, such as FedEx versus UPS or Coca-Cola versus PepsiCo, Union Pacific operates in a distinct market with limited overlap. Its closest competitor, Berkshire Hathaway's BNSF, operates different routes and serves different regions.

One key advantage of railroads like Union Pacific is their ownership of infrastructure. This means their expenses are focused on labor and maintenance rather than the costly construction of new routes.

Though the company may experience some slowdown during economic downturns, Union Pacific's business model is designed for long-term stability. With a P/E ratio of 23.3 and a recent quarterly dividend increase to $1.34 per share, offering a forward yield of 2.2%, it remains a reliable dividend stock for investors looking for consistency and durability.

5. UPS: A High-Yield Dividend Stock with Long-Term Potential

UPS recently hit a new 52-week low due to disappointing results, with reduced package delivery volumes and increased costs impacting its growth. This downturn has reversed the strong momentum UPS experienced during the pandemic.

Despite these short-term challenges, UPS remains a compelling investment for the long term. The company has outlined a clear strategy with achievable goals for the next three years, as discussed during its 2024 Investor and Analyst Day. While the stock has been relatively flat since then, UPS's fundamental strengths are worth noting.

The company is heavily investing in innovations, including artificial intelligence, to enhance efficiency and drive margin growth. Additionally, UPS is expanding its healthcare services to cater to customers with time-sensitive and temperature-controlled shipments.

With a P/E ratio of just 21 and an attractive dividend yield of 5.1%, UPS presents a solid buy-and-hold opportunity. Its high yield makes it particularly appealing for investors seeking to boost their passive income, even amid market volatility.

Rock-Solid Stocks to Buy Now

During a stock market sell-off, investors often focus on ultra-safe options like Coca-Cola, Lockheed Martin, or Waste Management. While these companies are certainly worth considering, cyclical stocks with attractive valuations and growing dividends—such as Union Pacific and UPS—also present compelling investment opportunities.

The key to successful investing is finding companies that can consistently meet shareholder expectations over the long term. For dividend-paying stocks, this means having the ability to grow earnings, maintain a competitive edge, and uphold a strong balance sheet. All five of the stocks mentioned—Coca-Cola, Lockheed Martin, Waste Management, Union Pacific, and UPS—are top performers in their industries, positioned to withstand market downturns, potentially gain market share, and emerge even stronger.

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