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The coronavirus pandemic recently killed the 11-year-old bull market and opened the floodgates for the bears. Bear markets are inevitable, but buying dividend growth stocks that regularly raise their payouts can help you weather grizzly times — especially if you reinvest those dividends to take advantage of dollar-cost averaging.
It's tempting to buy dividend stocks with the highest yields, but some of those stocks can have unattractive payout ratios. Meanwhile, well-run companies that pay stable dividends at lower payout ratios could significantly raise — or even double — their existing dividends during market downturns to help lock in investors. Let's take a look at three income stocks that fit that bill: Apple (NASDAQ:AAPL), Intel (NASDAQ:INTC), and Oracle (NYSE:ORCL).
1. Apple: Near-term challenges, but plenty of FCF to raise the dividend
Apple's stock slipped more than 20% over the past month after it warned that coronavirus-induced supply chain disruptions would throttle its second-quarter growth. It noted its iPhone supply was “constrained,” and that temporarily store closures would impact its sales in China, which accounted for 15% of its top line last quarter.
However, in recent years Apple has been reducing its dependence on hardware sales while expanding its services ecosystem, which generated 14% of its revenue last quarter. Robust sales of AirPods and Apple Watches are also reducing its long-term dependence on the iPhone.
Apple currently faces more headwinds than tailwinds, but it still generated free cash flow (FCF) of $64 billion over the past 12 months. It spent just 22% of that total on its dividend over the same period, which gives it plenty of room to raise its forward yield of 1.1%. Apple has raised its dividend annually ever since it was reinstated in 2012, but doubling its payout could soothe tattered nerves as it deals with near-term challenges.'
