3 Dividend Stocks That Should Hold Up No Matter the Market Conditions

One reason investors love dividends is for the steady payout that comes regardless of whether the market is going up or down. That assumes, of course, that the company behind the payment is in a position to distribute some of its capital to shareholders even when the business itself takes a dip. 

But another factor to consider when choosing a dividend stock is how that underlying business holds up during adverse market conditions. It may be for different reasons, but three stocks that check those boxes for reliable dividends and sustainable business models are big box retailer Costco (NASDAQ:COST), steel company Nucor (NYSE:NUE), and spice maker McCormick (NYSE:MKC). 

Image source: Getty Images.

Sharing with shareholders

A market downturn can come for many different reasons, but a recession is the one that could impact underlying business performance the most. The pandemic-caused recession in 2020 was brief, but it was unique in that many businesses continued to suffer for related reasons well past the official resumption of economic growth. But Costco showed its value as an essential business, especially at a time of uncertainty for consumers. 

The company increased its comparable sales during the pandemic. But importantly, it has accelerated that growth in its 2021 fiscal year, which runs through August, as shown below. 

Data source: Costco financial reports. *Excluding the impacts from changes in gasoline prices and foreign exchange. 

Part of Costco’s sales growth is coming from its e-commerce business. That channel grew more than 50% year over year in fiscal 2020, but then it jumped another 43% in fiscal 2021. The market has recognized the ongoing success, and the stock is up 37% year to date. But it should still be a holding investors can be comfortable with, even through a market downturn. Costco pays a dividend with a relatively benign yield of 0.6% at recent prices. But it has paid stockholders a special dividend four times in the past eight years, including a $10-per-share payout in December 2020 funded by existing cash. During the bad times, that is something else shareholders can potentially look forward to coming back during the better times. 

Solid as steel

Investors should realize that Nucor’s business is far from immune to economic swings. In the cyclical steel industry, the stock itself is likely to swing in a range during both good and bad times. But over the long run, the stock should hold up and give comfort to shareholders for several reasons.  

Nucor is constantly working to innovate and grow. It has a solid balance sheet and a business model that allows it to become more efficient when conditions dictate through its production-bonus pay system. Employees are rewarded during the good times but also share in helping the company weather the bad times. 

For investors, it pays…