Wall Street has made it clear to investors over the past four weeks that stocks can also fall.
When the closing bell sounded on August 2, the growth stock market rose Nasdaq Composite (NASDAQINDEX: ^IXIC) had officially entered correction territory, down more than 10% from its all-time high reached on July 10. The fireworks really began on Monday, August 5, when the Nasdaq briefly lost more than 1,000 points at the open and ended the day down 576 points. While this was “only” a 3.43% drop, the 576-point drop is the eighth-largest nominal-point drop in the index’s history.
Over three trading sessions, from August 1 to 5, the Nasdaq Composite lost nearly 1,400 points, or about 8% of its value. In other words, the index most responsible for leading the broader market higher is now in turmoil.
The silver lining for long-term investors is that turmoil breeds opportunity. Even without knowing how long this heightened volatility will last or where the Nasdaq Composite will ultimately bottom, history shows that buying stakes in proven companies with competitive advantages during selloffs and holding those companies for long periods of time offers a strong chance of success.
On Wall Street, there are few investment strategies as fruitful as buying and holding top dividend stocks for the long term.
According to a report released last year by the investment advisers Hartford Funds, dividend stocks have more than doubled the average annual return of nonpayers over the past half century — 9.17% versus 4.27%. What’s more, income stocks have achieved this outperformance while earning 6% fewer more volatile than the benchmark S&P 500This makes dividend stocks an ideal buying candidate during periods of turmoil for Wall Street’s major indices.
With the Nasdaq facing a historic sell-off, these three high-yielding dividend stocks are real buys.
Real estate income: 5.32% return
The first supercharged dividend stock that’s a no-brainer buy during the Nasdaq’s historic sell-off is the top name among retail real estate investment trusts (REITs), Real estate income (NYSE: O)Realty Income pays a monthly dividend and has increased its payout for 107 consecutive quarters.
One reason investors can trust Realty Income to deliver, even during Wall Street turmoil, is its vast commercial real estate (CRE) portfolio. As of June 30, it owned or had interests in 15,450 CRE properties, about 90% of which were considered resilient to economic downturns and various e-commerce pressures.
More specifically, Realty Income’s retail portfolio is focused on independent businesses that provide basic necessities and services. For example, grocery stores, convenience stores, dollar stores, hardware stores, drug stores and auto service locations collectively accounted for nearly 42% of the company’s annual contractual rent in the quarter ended March. Leasing to businesses that attract customers in any economic climate means little to no worry about not paying rent on time.
To build on this, Realty Income has had no trouble retaining its tenants. It ended the June quarter with just 185 properties available for lease or sale, which equates to an occupancy rate of 98.8%, which is above the industry average!
In addition to its highly successful retail-focused CRE portfolio, Realty Income is expanding into new verticals. It has completed two deals in the gaming industry in the past two years, acquired Spirit Realty Capital earlier this year, and formed a joint venture with Digital Real Estate Trust to lease custom-built data centers.
Despite decades of outperformance, Realty Income is currently valued at just 13.1 times Wall Street’s consensus estimate for 2025 cash flow. That’s a 23% discount to the average cash flow multiple over the past five years, making it an attractive buy right now.
Sirius XM Holdings: 3.53% yield
A second high-yielding dividend stock that’s a sure buy now that the Nasdaq Composite is in turmoil is satellite radio operator Sirius XM Holdings (NASDAQ: SIRI)Sirius XM’s poor stock performance in 2024 has pushed the company’s yield above 3.5%.
The overriding concern for Sirius XM over the next few quarters is weakness in the auto industry. Sirius XM relies on promotional users converting to self-pay subscribers — buyers of new vehicles are sometimes given a promotional three-month subscription to Sirius XM’s satellite service. If the U.S. economy enters a recession or consumer confidence weakens, new vehicle sales are likely to decline. That would likely have a negative impact on the number of self-pay subscribers added.
While total subscribers have declined slightly in recent quarters, Sirius XM Holdings offers a competitive advantage that most radio operators can’t offer.
Sirius XM’s key differentiator is revenue generation. The traditional radio industry, including most online radio providers, relies almost exclusively on advertising to keep things going. This strategy works well until ad spending dries up during a recession. Less than 20% of Sirius XM’s net revenue can be attributed to advertising in the first half of the year.
For comparison, 77% of the company’s net revenue in the first six months of 2024 came from subscriptions. The company’s subscribers are far less likely to cancel their service in tough times than companies are to meaningfully scale back marketing. In other words, Sirius XM’s operating cash flow should be more stable than that of traditional radio providers.
It is also the only licensed satellite radio provider. While it still faces competition from terrestrial and online radio, a legal monopoly allows Sirius XM to raise its subscription prices without much fuss.
Sirius XM’s forward price-to-earnings (P/E) ratio of just over 9 is a whopping 48% lower than the average forward-year multiple over the past five years. Again, a clearly to buy screaming.
Enterprise Products Partners: 7.53% return
The third high-yielding dividend stock that’s a screaming buy given the historic sell-off we’ve seen in the Nasdaq Composite over the past week is energy giant Business Product Partners (NYSE: EPD)Enterprise has increased its payout for 26 consecutive years and currently pays out an S&P 500 yield of 7.5%, which is crushing.
Granted, some investors may be wary of putting their money into oil and gas stocks, given how volatile the spot price of energy commodities can be during periods of Wall Street unrest. What gives Enterprise Products Partners an edge is its role in the energy complex.
While drillers are heavily dependent on the spot price of crude oil and natural gas, Enterprise’s not-so-subtle secret is that it is an energy intermediary. Instead of drilling, it is responsible for more than 50,000 miles of transmission pipelines, more than two dozen fractionation facilities and can store more than 300 million barrels of liquids.
What makes Enterprise Products Partners such a sought-after investment among midstream companies is the structure of its contracts with upstream drillers. It relies heavily on long-term, fixed-fee contracts. The “fixed fee” nature of these deals removes spot price volatility from the equation, allowing Enterprise’s management team to accurately predict cash flow a year or more in advance.
It cannot be overstated how important it is for midstream energy companies to be able to accurately predict their future cash flow. That’s what has given Enterprise’s management team the confidence to approve $6.7 billion in major projects, much of which is aimed at bolstering its natural gas liquids business.
Best of all, it takes about three years considerable Reduced capital spending by major energy companies during the COVID-19 pandemic has led to tight global crude oil supplies. As long as supplies remain tight and the spot price of crude oil is above historical norms, domestic drillers will be incentivized to increase production. This means even more opportunities for Enterprise Products Partners to strike lucrative long-term deals.
At 9.7 times next-year earnings, Enterprise is valued at a 6% discount to the average next-year earnings of the past five years. That’s a big deal when you factor in a 7.5% dividend yield.
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Sean Williams has positions in Sirius XM. The Motley Fool has positions in and recommends Digital Realty Trust and Realty Income. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
The Nasdaq Is in Turmoil: 3 High-Yielding Dividend Stocks That Are Screaming Bargains During This Historic Sell-Off was originally published by The Motley Fool
