3 Dividend Stocks That Thrive in Market Crashes

Markets Motley Fool

When markets get overheated, as they seemingly are now, it's only natural for investors to begin thinking about stocks that not only can survive a downturn -- or worse, a crash -- but may even be able to thrive during one.

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We asked three Motley Fool investors to each identify a stock that had such attributes. Read on to discover why McDonald's (NYSE: MCD), Amgen (NASDAQ: AMGN), and Clorox (NYSE: CLX) are stocks that may possess an innate resilience to bad times.

Market crash? Put a smile on

Keith Noonan (McDonald's): When economic conditions worsened during the 2008 economic crisis, sales at McDonald's actually increased, and the company's shares proved to be quite resilient amid a stretch that saw no shortage of worrying economic data.

As the graph above illustrates, McDonald's stock dramatically outperformed the market during the last crash and maintained the gains that it posted in the months preceding the start of the broader market's slide. It's impossible to know for certain whether Mickey D's will once again defy economic trends whenever the next big sell-off hits, but the company's focus on providing inexpensive food and beverage options does put it in position to thrive when consumer spending habits tighten.

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While restaurant sales typically suffer when the economy is in a rough patch, people can still be counted on to head out for meals and get food and drinks on the go -- a dynamic that allows a value-focused business like McDonald's to win traffic away from competitors. Take coffee sales, a key focus for the company in recent years, as just one example. The Golden Arches' coffee offerings fare surprisingly well against those from Starbucks in many taste tests, while also being cheaper, so it's not hard to imagine that a significant number of coffee lovers could migrate to Mickey D's if saving money becomes a bigger priority. 

McDonald's stock also stands out as a reliable place to look for dividend growth, with the company having delivered annual payout increases for 40 years running. Between its solid 2.4% yield, history of consistent dividend growth, and a business model that can thrive in a downturn, McDonald's could very well laugh at the next market crash.

A biotech that shrugged off the Great Recession

Keith Speights (Amgen): Most stocks plunge during a market crash. Some stocks drop -- but only by a modest amount. Then you have stocks like Amgen. The big biotech actually gained over 20% in 2008, while the market was in a free-fall.

There's no guarantee, of course, that Amgen would weather a future market crash as well as it did back then. However, I suspect it would fare better than most stocks. The most important reason relates to the company's products. Amgen's top drugs, including bone-marrow stimulants Neulasta and Aranesp, will be needed by patients regardless of what's going on in the stock market.

Also, during significant market downturns, dividends are the best thing going for investors. In 2008, Amgen didn't pay a dividend; now it does. And it's a good dividend, with a current yield of 2.71%. Even better, Amgen claims one of the fastest-growing dividends in the entire stock market over the last three years.

Amgen isn't without challenges, though. The biotech faces increased competition for several of its products. The launch of cholesterol drug Repatha has been disappointing. Because of patent litigation, Amgen still hasn't even been able to launch its Humira biosimilar, Amjevita, despite winning regulatory approval last year. Still, if you're looking for a stock that shouldn't sink nearly as much as most other stocks do during a market crash, I'd say Amgen is a pretty good pick.

Cleaning up in good times and bad

Rich Duprey (Clorox): Even during a depression, no one wants to live in a pig sty, and that's why bleach maker Clorox can thrive in good times and bad. With a portfolio of well-known consumer products, from cleaning agents like Pine-Sol and Formula 409 to items as diverse as Brita water filters, Kingsford charcoal, and Burt's Bees lip balm, Clorox is able to derive 80% of its revenues from products that hold the No. 1 or No. 2 market share positions in their respective markets.

That kind of brand power has served both Clorox and its investors well over the years, as the consumer products giant has increased its dividend every year for the past 40 years. That puts it in a rarified group of companies known as Dividend Aristocrats, or companies that have hiked their shareholder payout annually for 25 years or more, and it's closing in on an even smaller cohort called Dividend Kings, which is a group of companies that have raised their dividends for 50 or more years.

Clorox has easily cleaned up when it comes to comparing its performance to that of the S&P 500 over the past decade. It has appreciated some 123% over the last 10 years while the broad market index has only risen about half as much, or some 65%.

Certainly, the cleaning products leader is priced like the stock royalty it is, but its muscular portfolio also produces significant amounts of free cash flow that it doesn't hesitate to use to return value to shareholders through dividends and share repurchases. And it's not resting on its laurels, either.

It has a plan called Strategy 2020 where it intends to grow net sales by 3% to 5% annually, improve EBIT margin by 25 to 50 basis points a year, and continue generating free cash flow as a percentage of sales of 10% to 12% of sales. In short, Clorox should be a stock you can count on to thrive in a market crash.

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Keith Noonan has no position in any of the stocks mentioned. Keith Speights has no position in any of the stocks mentioned. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool has a disclosure policy.