The S&P 500 is doing great this year after last year’s historic run higher. The broad index is up almost 9% in 2024. And though that’s down a bit from the all-time it hit at the end of March, performance still looks robust. That can only mean a crash is coming. It’s only a matter of the timing.
Historically speaking, this should be another good year. More times than not the stock market will post two straight years of growth after a sharp downturn like the one we had in 2022. But signs are building this could be an off year.
Inflation data just came in hot again finally killing off the slim hope the Federal Reserve would cut interest rates in June. Yields on 10-year Treasuries shot to a five-month high as a result, which is a bad sign for households as mortgage rates and other loans will likely rise. Now as corporate earnings season begins anew, will the results be as strong as they were in the first quarter?
Insert the shrug emoji here but it’s why investors need to prepare for the coming downturn. Protecting the gains you’ve made during the current bull market is a smart decision. Don’t go to an all-cash position because the market can be irrational for long periods of time. Just choose your investments more wisely.
Remember, you’re seeking protection not looking for momentum. The three companies below should provide your portfolio with sufficient cushion as they are stocks to buy before the market crash.
Altria (MO)
One of the best ways to protect your portfolio during a bear market is to buy dividend stocks. The income they generate offsets any loss suffered from declining stock prices. It’s why tobacco giant Altria (NYSE:MO) is one of the best stocks to buy in this scenario.
Even in the best of times you’re not buying Altria stock for capital appreciation. Over the past five years, the stock lost 25% of its value. Instead, the Marlboro owner rewards its investors with generous dividend payments. If you look at Altria’s total return since 2019, it’s a different story as MO generated over 12% growth.
So if the market is going to head south, Altria stock is the one you want. The dividend yields a whopping 9.4% annually but with an 83% earnings payout ratio. Even its free cash flow (FCF) payout ratio of 74% gives investors jitters. However, management has made the conscious decision to return most of its profits to investors as dividends and is targeting that range for its payout. And tobacco is a profitable business!
The dividend has grown 7% annually for the past decade (Altria’s raised it for 55 straight years) while FCF has grown 8%. Net income has risen 6% annually. In short, the payout is well supported and will serve investors as a market crash buffer.
Procter & Gamble (PG)
Consumer products giant Procter & Gamble (NYSE:PG) is no slouch when it comes to paying dividends either. It has made a payout to investors for some 133 consecutive years, one of the longest streaks of any stock on the market. Moreover, the owner of Pampers, Tide and Crest toothpaste has increased its dividend for 68 years running, making it a Dividend King.
While you get the security of Procter & Gamble stock’s dividend payment during a downturn, you also receive the consistency that comes from a company selling dominant consumer product brands. P&G products often hold the No. 1 or No. 2 selling position in their respective markets. That’s because consumers know that no matter where they are in the world, they can reach for a Procter & Gamble product and know the quality and reliability they are getting.
Now brand names do come under pressure during high inflation, high interest rate periods. P&G is no different. The stock has lagged the market for the past year or so as a result but recently turned higher.
Also, Procter & Gamble is a steady performer. Revenue is steadily rising along with profits, while the company’s share count steadily increases. That gives each dollar of dividend more potency and worth holding onto whether the market crashes or not.
Johnson & Johnson (JNJ)
The last of our trio of stocks to buy before the market crashes is drug developer Johnson & Johnson (NYSE:JNJ). Like Procter & Gamble, the pharmaceutical giant has trailed the market, but recently spun off its slow-growing Kenvue (NYSE:KVUE) consumer products division so it can focus on its more profitable healthcare business. Revenue growth is expected to accelerate now.
Johnson & Johnson owns a portfolio of billion-dollar treatments including Stelara and Tremyfa for plaque psoriasis, Darzalex for cancer and Simponi for rheumatoid arthritis. Revenue is forecast to grow between 7% and 8% annually with 12% to 13% adjusted profits growth.
Not surprisingly, the pharma stock also has an extended dividend history. JNJ has paid a dividend to shareholders every year since 1944. It has increased the payout for 61 consecutive years and will probably announce yet another raise in the next few weeks.
The dividend currently yields 3.2% annually making buying Johnson & Johnson stock one you will want to buy ahead of any market storms.
On the date of publication, Rich Duprey held a LONG position in MO and JNJ stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
