2 Supercharged Dividend Stocks to Buy if There's a Stock Market Sell-Off
There's a boom coming in North America, and it's only just starting. Companies are bringing their production back to the U.S., and infrastructure is being upgraded.
How big a deal is this? How about $1.4 trillion of announced projects, each one individually worth $1 billion or more, since the start of 2021. Most of these projects haven't even started yet, which is a huge opportunity for companies like Nucor (NYSE: NUE) and Eaton (NYSE: ETN). If their stocks go on sale, you'll probably want to jump on them.
Nucor is a leading North American steelmaker
Nucor is one of the largest and most diversified steel companies in North America. It uses electric arc mini-mills, which are flexible enough to be ramped up and down along with demand.
That helps Nucor support strong margins through the entire cycle in the steel industry. Companies running older blast-furnace technology tend to post deep losses during cyclical industry downturns.
Image source: Getty Images.
Now, there are more than 440 big projects on the way. Most, if not all, are going to require steel of some sort. Nucor won't win contracts for every project, of course, but it is highly likely to see strong demand from the ones it does end up winning. And that should help to keep revenue and earnings strong for this industry leader.
But the real attraction here is that Nucor is a Dividend King, with over five decades of annual payout increases. Talk about a supercharged dividend stock! The most exciting part is that it has achieved this despite the huge swings that the steel industry has seen over that span.
There's a supply glut today thanks to cheap imported steel (which the domestic industry believes is being unfairly dumped at low prices). That has pushed Nucor's stock price down by around 30% since the start of 2024. It looks like shares are on sale right now, for those who think long term.
But steel is highly cyclical, and the share price fell by nearly 60% during the brief recession that came with the pandemic. If Nucor drops that much again because of a bear market (and/or a recession), you should probably consider backing up the truck.
Eaton is growing its dividend at an attractive pace
Eaton is no Dividend King, with a streak that's "only" 15 years long. However, that isn't because of a payout cut; it was simply a pause in raises as the company digested a transformational acquisition.
That deal is what has positioned the company as a major supplier of equipment to manage electricity. This, in turn, is what has positioned Eaton to benefit from the $1.4 trillion in mega projects set to ramp up over the next few years.
Eaton has a global reach and a massive product portfolio. With more than 100 years of history behind it, the company has long shifted and adjusted with the world around it.
So what's happening here isn't actually that shocking. It's just Eaton doing what Eaton has done for a very long time. And, along the way, it has continued to reward investors well with dividend increases.
Over the past decade, the dividend has grown at an attractive 7% annual clip, which is roughly twice as fast as the historical rate of inflation. That means the buying power of Eaton's dividend has grown over time.
Eaton's stock has fallen around 10% from its recent highs. But 20% to 30% declines aren't unusual. If the market sells off and the shares get even cheaper than they are today, you'll probably want to take a very close look at the stock.
Remember: It is set to benefit mightily from the construction boom. To put a number on that, the company's backlog in its Americas division rose 29% year over year. The book-to-bill ratio is a strong 1.2 times, which means it is adding more to its backlog than it is working off.
This is a trend that will help power earnings, and there's no indication that it is likely to reverse anytime soon.
Already down, and it might not be over yet
Wall Street often throws the baby out with the bathwater during market sell-offs. So while Nucor and Eaton are already down from their recent highs, there could easily be more room for these powerhouse dividend stocks to fall.
If they do, given the strong outlook for mega projects in North America, you'll probably want to consider adding one, or both, to your portfolio.
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Reuben Gregg Brewer has positions in Eaton Plc and Nucor. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
