3 Dividend Stocks to Buy If the Market Crashes

It's been proved time and again that investing for the long haul outperforms short-term trading. It's also been shown that dividend-paying stocks do better than their non-dividend-paying peers. Since the markets are tumbling this month, let's consider three dividend-paying companies that may be on sale and could help investors build a bigger nest egg for retirement over the long term.

Source: Johnson & Johnson.

1. Johnson & Johnson is one of the biggest and best performing of the major drugmakers. The company is a Goliath in consumer goods, medical devices, and pharmaceuticals, but it's J&J's drug product lineup that's moved the revenue and profit needle the most in the past couple of years.

J&J has had a string of winners since the economy exited the Great Recession, including autoimmune drugs Stelara and Simponi, cancer-fighting compound Zytiga, and top-selling anticoagulant Xarelto. These drugs have propelled J&J to 21% year-over-year sales growth in the past year, but J&J's best days could still be ahead of it. The company continues to make big R&D investments through partnerships with emerging companies, and J&J also hasn't been shy about buying up emerging biotechs that it believes could make a big difference in the future.

For example, last year J&J bought Aragon Pharmaceuticals to get its hands on ARN 509, a second-generation compound developed in the same lab as Xtandi, from J&J competitors Medivation  and Astellas Pharma . Last week, J&J also announced that it bought Alios BioPharma to get that company's promising pipeline of antiviral drugs, too. Those moves show that J&J remains focused on developing new drugs down the road that could also support dividend-friendly increases. With J&J's shares down 5% so far this month, the solid 2.8% dividend yield may make this a top stock to pick up during the market slide.

2. Amgen historically poured money into R&D rather than issuing dividends, but that began changing in 2011, when the company's board approved its first quarterly dividend payment of $0.28 per quarter. That quarterly payment has since climbed to $0.61. 

At 1.8%, Amgen's current dividend yield isn't as high as some others, but Amgen's top-shelf products are among the globe's best selling biologics, and that suggests that future sales growth could allow Amgen to continue increasing its dividend over time.

Through the first six months of this year, Amgen's sales totaled $9.7 billion, up from $8.9 billion last year. Amgen owes that sales growth to Vectibix, a treatment for colorectal cancer, and Xgreva and Prolia, two drugs used to help strengthen bone in patients with various diseases. While those drugs are succeeding, Amgen's LDL cholesterol-busting drug evolocumab may have an even bigger impact on sales over the next couple of years. The company filed for evolocumab's approval in August, so the FDA should have a decision next spring.

Since Amgen is sitting on a cash hoard of $26 billion and has a cash dividend payout ratio of just 26%, the fact that Amgen's shares are retreating may make this a fine time to add it to a portfolio. (The cash dividend payout ratio measures how much operating cash, minus capital expenditures and preferred dividends, is being paid out on common dividends.)

Source: Bristol-Myers Squibb.

3. Bristol-Myers Squibb has hit some pretty tough headwinds since it lost patent protection on its multibillion-dollar blockbuster drug Plavix two years ago, but the company may be turning a corner back to growth. Bristol-Myers' fast-growing medicines include the cancer drug Yervoy, the leukemia drug Sprycel, the rheumatoid arthritis drug Orencia, and the anticoagulant Eliquis.

Thanks to those drugs, Bristol-Myers' sales have stabilized and are improving. While sales fell 4% year over year during the second quarter, adjusting sales to reflect the sale of its half of its diabetes joint venture to partner AstraZeneca  last winter shows that sales actually grew 7%. Revenue could be heading even higher into the year's end, given that Bristol-Myers gained approval to market its hepatitis C drugs Daklinza and Sunvepra in Japan this summer, giving it a head start over competitor Gilead Sciences in that market. However, it's Opdivo that may prove the real catalyst for sales growth over the coming years. Opdivo is being studied across a variety of cancer indications, and Bristol-Myers filed for FDA approval for its use in non-small-cell lung cancer in April and in melanoma in September.

With shares yielding about 3% and cash and marketable securities totaling $11 billion on the books, a market sell-off may prove a nice time to put Bristol-Myers away in a portfolio for a while, too.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here.


The article 3 Dividend Stocks to Buy If the Market Crashes originally appeared on Fool.com.

Todd Campbell owns shares of Gilead Sciences and Medivation. The Motley Fool recommends Gilead Sciences and Johnson & Johnson and owns shares of Gilead Sciences and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story