Preparing for the Inevitable Stock Market Correction with Dividend Stocks
The U.S. stock market has a long history of corrections, with 37 declines of 10% or more since 1945. These corrections typically occur about every 2.2 years. The most recent one happened in April 2025, when the market dropped around 20% from its peak. Given this pattern, another correction is inevitable, potentially sooner rather than later, as the S&P 500 is currently at one of its most overvalued levels on record.
To prepare for the next market downturn, investors can consider adding high-quality dividend stocks to their portfolios. These stocks are designed to provide stability and durability during market volatility. Three such stocks highlighted are Realty Income, Procter & Gamble, and WM.
Realty Income (NYSE:O) has outperformed the S&P 500 in 11 of the last 13 corrections. The real estate investment trust (REIT) has averaged a decline of only 2.6% during these periods, compared to a 22.6% average drawdown in the S&P 500. Its beta of 0.5 indicates it is half as volatile as the broader market. The REIT's stability comes from its diversified portfolio of retail, industrial, gaming, and data center properties, with over 90% of its retail rent from non-discretionary, service-oriented businesses. It offers a 6% yield and has increased its dividend 136 times since 1994.
Procter & Gamble (NYSE:PG) has a durable business with a portfolio of consumer household products that are in constant demand. The company has paid dividends every year since 1890 and has increased its dividend for 70 consecutive years. It generated $19.6 billion in cash flow last year, allowing it to invest in growth and return cash to shareholders through dividends and buybacks. Despite near-term inflation headwinds, P&G aims for mid- to high-single-digit earnings-per-share growth, supported by a 3% dividend yield.
WM (NYSE:WM) operates in the essential services sector, providing garbage and recyclables collection, medical waste disposal, and secure information destruction. Its business is resilient regardless of economic conditions. WM has raised its dividend for 23 straight years, with an 8.6% compound annual growth rate over the past decade. It offers a nearly 2% current yield and a beta of 0.56, providing income and lower volatility during market downturns.