Dividend Stocks

3 Must-Buy Dividend Stocks to Buy When Prices Plunge

Source: shutterstock.com/Athitat Shinagowin

Dividend stocks are some of the most reliable investments. These corporations distribute cash flow to their investors. Positive net income is a requirement for sustainable dividends. 

Investors can also gauge a corporation’s financial health based on dividend hikes. Companies that raise their dividends by 10% or more each year are typically in better positions than companies that only raise their dividends by 3% or less each year. 

While dividend income stocks can help investors who want cash flow now, dividend growth stocks offer more upside. These stocks usually have lower yields but make up for it with better growth rates and long-term opportunities. These are some of the must-buy dividend stocks to consider when prices plunge.

Caterpillar (CAT)

An image of the Caterpillar tractor brand logo.

Caterpillar (NYSE:CAT) has produced construction equipment for almost 100 years. The company has withstood many economic downturns while delivering value for shareholders. While the company should continue to rise in the long run, it faces short-term hiccups.

Recent setbacks from Q1 2024 can lead to an attractive long-term buying opportunity. Caterpillar reported flat year-over-year revenue in Q1 2024, while the company’s profit per share jumped from $3.74 to $5.75 year-over-year. That’s a 53.7% increase.

Caterpillar also warned that sales could slow down in the second quarter. High inflation and elevated interest rates present challenges to the construction industry. However, the industry isn’t going anywhere, and Caterpillar is one of the leaders. 

The stock has outperformed the market with a 147% gain over the past five years. Shares are in the middle of a correction that has resulted in the P/E ratio dropping to 15.50. The stock currently offers a 1.51% dividend yield and an impressive growth rate. Caterpillar has maintained an annualized dividend growth rate of 8.04% over the past decade.

Walmart (WMT)

An image of a Canoo, Inc. (GOEV) Walmart electric delivery vehicle

Walmart (NYSE:WMT) is positioned to benefit from an economic slowdown. The company’s retail stores are filled with affordable products that will attract more consumers as budgets tighten. Walmart is capitalizing on e-commerce to expand its market share and cater to more customers.

The company reported 23% year-over-year global e-commerce growth in Q4 FY24. E-commerce contributed to the company’s 5.7% year-over-year overall net sales growth.

Walmart is also working on its advertising segment, which could lead to higher margins. It’s a small but growing segment within the company. The retailer’s advertising business grew by 28% year-over-year to reach $3.4 billion. That’s a small slice of the company’s $648.1 billion consolidated revenue, but Walmart is committed to this segment. The firm recently acquired Vizio to bolster its advertising segment and generate higher profit margins.

Walmart shares are up by 13% year-to-date and have gained 77% over the past five years. The stock has been roughly flat since the end of February. 

American Express (AXP)

the American Express logo etched into wood

Source: First Class Photography / Shutterstock.com

American Express (NYSE:AXP) has consistently outperformed the stock market. It’s up 25% year-to-date and has almost doubled over the past five years. The credit and debit card firm is less vulnerable to a sharp pullback thanks to its 19.5 P/E ratio, strong financials, and long-term growth plan. 

However, any broader macroeconomic hurdles can result in a decline, especially if consumer spending goes down. Even if people spend less money, they will still use their credit and debit cards for purchases.

Q1 2024 revenue increased by 11% year-over-year while net income rallied by 34% year-over-year. Higher profit margins can support long-term growth for the company. American Express is well-run, and leadership expects to generate 9% to 11% yearly revenue growth beyond 2026. It also expects EPS growth to be in the mid-teens each year during that same stretch. American Express has the makings of a solid long-term stock, and it will become more attractive on any pullback.

On the date of publication, Marc Guberti did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Marc Guberti is a finance freelance writer at InvestorPlace.com who hosts the Breakthrough Success Podcast. He has contributed to several publications, including the U.S. News & World Report, Benzinga, and Joy Wallet.

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