Nasdaq Bear Market: 3 Monster Dividend Stocks You’ll Regret Not Buying on the Dip

Fasten your seatbelt, because stock market volatility has returned in a big way!

Since the beginning of the year, the benchmark S&P 500 and iconic Dow Jones Industrial Average have entered official correction territory. Both indexes have shed more than 10% of their value after hitting their respective all-time closing highs in early January.

It’s been an even tougher go for the growth-focused Nasdaq Composite (^IXIC 0.00%), which has lost more than 20% of its value since hitting a record high in mid-November. This puts the widely followed Nasdaq in a bear market.

Dividend stocks can be your ticket to success in a bear market

Without question, bear markets can be scary. The velocity and unpredictability of downside moves can lead to investors’ emotions getting the better of them. But if history has demonstrated anything, it’s that buying high-quality stocks during market pullbacks, and holding those stocks for extended periods, is a moneymaking strategy that works far more often than not.

In particular, buying dividend stocks can be your golden ticket to riches during a Nasdaq bear market.

Why dividend stocks? The best answer I can offer is that they’ve significantly outperformed their non-dividend peers over the long run. Nine years ago, J.P. Morgan Asset Management, a division of JPMorgan Chase, released a report comparing the annual average returns of dividend stock to non-payers over a 40-year period (1972-2012). The dividend stocks crushed the non-payers with an average annual return of 9.5% versus 1.6%.

The fact that income stocks perform better than non-payers over long periods isn’t a surprise. Businesses that pay a regular dividend are often profitable on a recurring basis, time-tested, and have clear long-term growth outlooks. They’re just the type of companies that should increase in value over time.

With the Nasdaq bear market weighing on virtually all sectors and industries, now is the ideal time for investors to go shopping. What follows are three monster dividend stocks you’ll regret not buying on the dip.

AT&T: 5.75% yield

The first monster dividend stock that’s begging to be bought during this Nasdaq bear market dip is a company that caters to value investors: AT&T (T -2.88%).

Like most large telecom stocks, AT&T’s growth heyday has long since passed. With lending rates near historic lows for years, investors chose to ignore slow-growing value plays like AT&T and focus on high-growth tech and healthcare companies. But with the market tumbling, a company like AT&T, which can generate steady operating cash flow, becomes much more attractive.

Despite years of slow growth, AT&T does have two organic catalysts at its doorstep. First, there’s the ongoing upgrade of wireless infrastructure to support 5G. It’s been about a decade since telecom providers significantly improved wireless download speeds. Although these upgrades are costly and time-consuming, they’re liable to kick off a multiyear device replacement cycle that leads to a steady increase in data consumption. Since AT&T generates its juiciest margins from the data side of its wireless business, investing in 5G infrastructure should prove a smart move.

The other big catalyst for AT&T is the now-complete spin-off of WarnerMedia, which was subsequently merged with Discovery to create an entirely new media entity, Warner Bros. Discovery. The way this deal was structured resulted in AT&T being paid $40.4 billion in cash at its completion. With AT&T also reducing its quarterly payout, the company should have no trouble making a sizable dent in its debt load. In other words, its financial flexibility should demonstrably improve as a result of this deal.

Sporting a hearty 5.8% yield and valued at less than eight times Wall Street’s forecast earnings per share, AT&T looks like a screaming buy.

Innovative Industrial Properties: 4.75% yield

Another monster dividend stock you’ll be kicking yourself over if you don’t buy it on the dip is cannabis-focused real estate investment trust Innovative Industrial Properties (IIPR -4.11%).

IIP, as the company is more commonly known, acquires cannabis cultivation and processing facilities with the intent of leasing these assets out for long periods. As of roughly two weeks ago, the company owned 108 properties spanning 8.1 million square feet in 19 states. The last time IIP reported its weighted-average lease length, it was more than 16 years. This means the company is sitting on an operating cash flow goldmine.

Although acquiring new properties is Innovative Industrial Properties’ primary means of growth, it also has an organic growth component built in. The company passes along inflationary rent hikes each year, and collects a property management fee that’s tied to the base annual rental rate for each tenant.

But what’s really helped IIP in recent years is the U.S. federal government’s inability to pass cannabis banking reforms. With access to basic banking services hit-and-miss for marijuana stocks due to weed being a federally illicit substance, IIP has stepped in with its sale-leaseback program. IIP is acquiring properties for cash, and immediately leasing them back to the seller for an extended period. As long as cannabis banking reform remains stymied in Congress, IIP can clean up with sale-leaseback agreements.

Innovative Industrial Properties has grown its quarterly payout by 1,067% in less than five years and is valued at only 20 times Wall Street’s forecast earnings for 2023, despite projected sales growth of 24% next year. That’s a bargain for growth and income seekers.

Broadcom: 2.93% yield

A third monster dividend stock you’ll regret not buying on the Nasdaq’s bear market dip is semiconductor solutions company Broadcom (AVGO -4.24%).

As with AT&T, Broadcom’s biggest catalyst over the next couple of years is going to be the 5G wireless revolution. This company generates the lion’s share of its revenue by producing wireless chips used in next-generation smartphones. As more consumers and businesses trade in older devices for smartphones capable of 5G download speeds, Broadcom is going to thrive. Per IDC, U.S. 5G smartphone sales are expected to grow from 33.4 million units in 2020 to 153.3 million in 2025. 

Investors should also be excited about Broadcom’s other sales channels. For instance, it provides solutions for next-generation automobiles, as well as access and connectivity chips used in data centers. The latter is a particularly intriguing growth opportunity given that businesses have been moving their data into the cloud at an accelerated pace in the wake of the pandemic.

Though Broadcom isn’t sitting on the same level of cash flow predictability as IIP, it is benefiting from a historically high backlog of $14.9 billion. CEO Hock Tan noted earlier this year that his company has been booking production well into 2023. Despite semiconductors being a cyclical industry, this huge backlog should help lift Broadcom’s pricing power.

Since December 2010, Broadcom’s quarterly payout has grown by (drum roll) more than 5,700% — not a typo! With shares valued at roughly 14 times forward-year earnings, it looks like a steal of a deal.