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Dividend Trio to Survive a Bear Market

11/05/2018 5:00 am EST

Focus: DIVIDEND

Tim Plaehn

Investment Research Analyst, Investors Alley

My strategy for getting through the next bear market and surviving until the next bull is to own higher yield, dividend paying stocks that will not cut the dividend through the downturn, asserts income expert Tim Plaehn, editor of The Dividend Hunter.

These stocks should not fall as far in a bear market. Also, I can take the dividends to average down my share price through the market downturn. Coming out the other side I will have a lower average cost of shares and a much larger dividend income stream. That’s a win-win strategy to get through a bear market.

Here are three stocks where the dividend is very secure, pay attractive yields. More importantly they should be able to pay the current dividends through any deep and lasting downturn in the stock market. By lasting I mean the average bear market length of nine to 12 months.

Starwood Property Trust (STWD) is a commercial property finance REIT. The book of loans is very conservative with a 62% LTV. The company’s loan clients are highly motivated to make those payments.

In recent years, Starwood has diversified the company with the purchase of a commercial mortgage servicing business and acquiring a portfolio of low income apartment complexes. Both businesses, especially the servicer, will do very well if the economy slows down.

The current $1.92 annual dividend is well covered by a core income run rate of $2.25 per share. The 9.0% yield means large dividends to reinvest as the share price gets cheaper.

Aircastle Limited (AYR) may be my personal favorite stock to buy in a bear market. Aircastle is an aircraft leasing company with client airlines around the world.

The current $1.12 per share annual dividend is backed by about $4.00 per share in free cash flow. This stock got very cheap in the last bear market even though the financial remained rock like.

Picking up AYR shares at the bottom of the bear resulted in gains that were multiples of the share price. This is a nice 5.9% yield income stock now that gets even more attractive as the share price falls.

Tanger Factory Outlet Centers (SKT) is the only pure play owner of outlet type shopping centers. In tougher economic times people still like to shop but are more likely to go to an outlet mall to score some deals.

The safety factor of owning shares of Tanger is the company’s track record. This REIT has increased its dividend every year since its 1993 IPO. There have been two severe bear markets in that time, so you can believe that the dividend will be secure and grow.

Tanger is also very conservative in the management of its balance sheet. This should let the company make accretive acquisitions when its competitors become financially distressed. SKT currently yields 6.5%.

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