Market Crash: Bank on Safe Dividend Stocks

In a market crash, it’s super helpful to buy safe dividend stocks for juicy passive income. Bank on these 5-6% yields now!

| More on:
Cogs turning against each other

Image source: Getty Images.

The current market crash we’re experiencing is a wake-up call to keep stocks of quality businesses in one’s portfolio. These are the stocks that investors can hold through bear markets and good times.

It’s even better to hold safe dividend stocks, because investors can get the reassurance from regular dividends.

To build a safe dividend stock portfolio, you’ve got to carefully select stocks one at a time.

I believe durable businesses that lead their respective industries will survive the challenging macro environment raised by the coronavirus crisis.

After the pandemic comes to pass, as other negative events of the past have, the quality stocks discussed in this article will recover. Meanwhile, investors can enjoy safe dividend income.

They have elevated yields thanks to lower stock prices.

Market crash? Buy safe dividend stock Brookfield Infrastructure

In a market crash, investors want to buy businesses that are well capitalized. Brookfield Infrastructure (TSX:BIP.UN)(NYSE:BIP) is one such company. What’s more is that investors can now buy the corporation version with the ticker “BIPC” on the TSX or NYSE.

First, BIP has about US$1.9 billion of corporate liquidity. Second, its secured investments are fully funded.

Third, the diversified infrastructure company enjoys an investment-grade credit rating of BBB+. Its corporate interest coverage is about 23 times.

Finally, BIP retains about 35% of cash flow for maintenance and organic growth projects. This means that it aims for a payout ratio of about 65% to protect its cash distribution.

At writing, BIP stock offers a yield of about 5.9%. The company’s cash flow generation is diversified across utilities (35% of funds from operations), transport (32%), energy (25%), and data infrastructure (8%).

The pandemic-triggered slower economic activities will impact some of BIP’s cash flow. For this reason, the market crash provides a good entry point for long-term investment and allows investors to secure a high yield.

Bear market? Buy safe dividend stock: Royal Bank of Canada

Royal Bank of Canada (TSX:RY)(NYSE:RY) is the largest bank in Canada. As a result, its diversified business allows it to better capitalize on opportunities created from dynamic markets.

The bank’s earnings are diversified across personal and commercial banking (49% of earnings), capital markets (22%), wealth management (20%), and insurance (6%).

The big Canadian bank’s common equity tier one ratio was strong at 12% at the end of fiscal Q1 2020. The quality Canadian bank is one of two wide-moat banks in Canada, according to Morningstar. Additionally, RY stock’s return on equity has been high with a five-year average of 17%.

The market crash dragged down RY stock to about $84 per share, which is about 9.2 times earnings. This valuation is the cheapest since the last financial crisis.

Certainly, the near-term economic outlook is grim. However, it gives rise to the opportunity of buying a world-class, diversified bank with an elevated dividend yield of about 5.1%.

RY stock’s payout ratio is about 48%. Therefore, it has a big margin of safety to protect its dividends.

The Foolish bottom line

To build a safe dividend stock portfolio, investors need to be picky about the businesses to invest in. These businesses should be well capitalized and have dividends protected by sustainable payout ratios.

I believe Brookfield Infrastructure and Royal Bank of Canada are leaders in their industries that provide safe, juicy yields of 5-6% and long-term price appreciation potential.

Looking for more ideas like these? Consider these undervalued stocks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. 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, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of Brookfield Infrastructure Partners and Royal Bank of Canada. The Motley Fool recommends BROOKFIELD INFRA PARTNERS LP UNITS and Brookfield Infrastructure Partners.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »