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

Buckle up, because stock market volatility has returned massively!

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

It has been even more difficult for the growth-oriented Nasdaq composite (^IXIC -4.17%, which has lost more than 20% of its value since hitting a record high in mid-November. This places the widely followed Nasdaq in a bear market.

A growling bear in front of a falling stock card.

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

Bear markets can undoubtedly be terrifying. The speed and unpredictability of downward movements can cause investor emotions to take over. But if history has shown anything, it’s that buying high-quality stocks during downturns, and holding those stocks for a longer period of time, is a money-making strategy and far more often than not it works.

Buying dividend stocks in particular can be your golden ticket to wealth during a Nasdaq bear market.

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

It’s no surprise that income stocks outperform non-payers over long periods of time. Companies that pay out regular dividends are often profitable on a recurring basis, proven and have clear long-term growth prospects. They are just the kind of companies that should increase in value over time.

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

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AT&T: 5.75% yield

The first monster dividend stocks begging to be bought during this Nasdaq bear market dip is a company targeting value investors: AT&T (T -2.88%

Like most major telecom stocks, AT&T’s growth period is long over. With borrowing rates near historic lows for years, investors chose to ignore slow-growth value games like AT&T and focus on high-growth technology and healthcare companies. But with the market tumbling, a company like AT&T, which can generate stable operating cash flow, becomes much more attractive.

Despite years of slow growth, AT&T has two organic catalysts on its doorstep. First, there is the continuous upgrade of the wireless infrastructure to support 5G. It has been about ten years since telecom providers significantly improved wireless download speeds. While these upgrades are costly and time-consuming, they can lead to a multi-year device replacement cycle that leads to a steady increase in data usage. Since AT&T gets its juiciest margins from the data side of its wireless business, investing in 5G infrastructure should be a smart move.

The other big catalyst for AT&T is the now complete spin-off of WarnerMedia, which then 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 upon completion. With AT&T also lowering its quarterly payout, the company should have no trouble making a significant dent in its debt load. In other words, this deal should demonstrably improve its financial flexibility.

With a solid 5.8% yield and a valuation less than eight times Wall Street’s expected earnings per share, AT&T looks like a steal.

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Innovative industrial features: efficiency of 4.75%

Another monster dividend stock you’ll be kicking yourself for if you don’t buy it on the dip is a cannabis-focused real estate mutual fund Innovative industrial features (IIPR -4.11%

IIP, as the company is better known, is acquiring cannabis cultivation and processing facilities with the intention of renting out these assets for long periods of time. About two weeks ago, the company owned 108 properties spread over 8.1 million square feet in 19 states. The last time IIP reported its weighted average lease term was over 16 years. This means that the company is sitting on an operational cash flow gold mine.

While acquiring new properties is the primary growth vehicle of Innovative Industrial Properties, it also has a built-in organic growth component. The company charges inflationary rent increases each year and collects a property management fee that is tied to the annual base rent for each tenant.

But what has really helped IIP in recent years has been the inability of the US federal government to implement cannabis banking reforms. Because marijuana is a federally illicit substance, IIP stepped in with its sale-leaseback program. IIP acquires real estate for cash and immediately rents it back to the seller for an extended period of time. As long as cannabis banking reform remains thwarted in Congress, IIP can clean up with sale-leaseback deals.

Innovative Industrial Properties is up 1,067% in less than five years and is valued at just 20 times Wall Street’s projected 2023 earnings, despite projected revenue growth of 24% next year. That’s a bargain for growth and income seekers.

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Broadcom: 2.93% return

A third monster dividend stock you’ll regret not buying in the Nasdaq’s bear market dip is a semiconductor solutions company broadcom (AVGO -4.24%

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

Investors should also be excited about Broadcom’s other sales channels. For example, it offers solutions for next-generation cars, as well as access and connectivity chips used in data centers. The latter is a particularly intriguing growth opportunity as companies have moved their data to the cloud at an accelerated pace in the wake of the pandemic.

While Broadcom isn’t at the same level of cash flow predictability as IIP, it benefits from a historically high $14.9 billion backlog. CEO Hock Tan noted earlier this year that his company is booking production well into 2023. Despite semiconductors being a cyclical industry, this massive backlog should help boost Broadcom’s pricing power.

Since December 2010, Broadcom’s quarterly payout with (drum roll) has increased by more than 5,700% — no typo! With stocks valued at about 14 times earnings for the year, it seems like a steal.

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