3 Companies Built to Withstand Market Turbulence

The market has entered some turbulence in recent months. the S&P 500 has officially corrected — falling 10% from its high — while the tech-heavy Nasdaq Composite tumbled into bear market territory. Meanwhile, many other stocks are down a lot more.

While market turbulence can be tough to stomach, it’s a fairly common occurrence. Because of that, investors need to make sure they own stocks that can handle these rough patches. Here’s a closer look at three stocks — Dominion Energy (D 0.06% ), Enbridge (ENB 0.04% )and Waste management ( WM 0.01% ) — built to withstand these tough times.

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Boring, but in a good way

Reuben Gregg Brewer (Dominion Energy): Utilities like Dominion Energy have monopolies in the regions they serve. That means that they are highly reliable businesses. Indeed, the necessity of power in modern society and the fact that customers can’t easily shift to alternative power options leads to fairly resilient revenue — regardless of what is going on in the world or economy.

Utilities also have to get their capital investment plans approved by regulators. This spending is what supports utility rate hike requests, with the outlays generally continuing even in the face of Wall Street turbulence. Dominion has a $37 billion five-year spending plan that it believes will support annualized earnings-per-share growth of 6.5% through 2026. That, in turn, should lead to annualized dividend growth of around 6% over that same period, with the company targeting a modest payout ratio of 65%.

Now add in Dominion’s roughly 3.2% dividend yield, which is more than twice the S&P 500 index’s 1.3%, and there’s a lot to like about this utility. The key, however, is how insulated its business and spending plans are from Wall Street’s ups and downs, and other exogenous shocks. It can provide a valuable anchor point for a more broadly diversified portfolio, especially when uncertainty is high. If you could use a little boring in your life, Dominion is worth a deep dive.

Built to weather any storm

Matt DiLallo (Enbridge): Enbridge has one of the lowest-risk business models in the energy industry. It operates a diversified infrastructure portfolio across liquids pipelines, gas transmission, gas distribution and storage, and renewable power with more than 40 sources of cash flow. The company gets 98% of its earnings from stable long-term cost-of-service agreements and fixed-rate contracts, with 95% of its customers having an investment-grade credit rating. As a result, Enbridge produces very steady cash flow.

Meanwhile, the company has a strong financial profile. It has a solid investment-grade credit rating with leverage currently toward the low end of its target range. Meanwhile, despite paying a dividend that currently yields 6.1%, Enbridge has a reasonable dividend payout ratio of around 65% of its cash flow.

Combined with its balance sheet flexibility, that retained cash gives Enbridge billions of dollars in annual financial flexibility to invest in expanding its operations. The company estimates it has the financial capacity to fund enough investment to grow its cash flow per share at a 5% to 7% annual rate through at least 2024. Enbridge has no shortage of investment opportunities. It currently has a multi-billion-dollar backlog of expansion projects and a growing pipeline of development opportunities.

That gives Enbridge the fuel to continue delivering steady growth. Since 2008, the company has expanded its earnings at a 14% compound annual rate. Meanwhile, it has increased its dividend for 27 straight years. Given its current growth forecast, Enbridge should be able to continue boosting its payout in the coming years, even if there is another downturn. These factors make it own a great stock while riding out market turbulence.

Earn regular passive income even during turbulence

Neha Chamaria (waste management): In a world where there are so many alluring high-flying growth stocks to bet on, few investors even look at traditionally boring industries. Yet, these boring stocks are the ones that can save your portfolio during turbulent times like the ones we’re witnessing today. As an example, consider the wild swings in the market and the fact that some growth stocks have lost more than half their value over the past three months. Waste management stock, though, is down barely 7% during the period.

It’s not hard to understand the reasons behind this resilience. Waste Management offers an essential service of collecting, recycling, and disposing waste, the demand for which doesn’t ebb and flow with the economy. This is also why Waste Management has been able to increase dividends every year for 19 consecutive years. It last increased its dividend by 13% in December, and in February, the company delivered record revenue and income from operations for the full year 2021.

Waste Management expects another strong year ahead amid rumors that it’s eyeing waste management and industrial cleaning services company Clean Harbors. Clean Harbors generated $3.81 billion in revenue in 2021 and sees strong business momentum for 2022. Waste Management last acquired Advanced Disposal for $4.6 billion in late 2020, and I wouldn’t be surprised to see the company make some smaller acquisitions to strengthen its foothold further in the waste management industry in the US

Meanwhile, investors in Waste Management can enjoy steady and growing dividends, and this passive income in particular can come handy during tough times.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re Motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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