Stock market corrections (a decline of 10% or more from the recent high) can be a gift to dividend-seeking investors. As stock prices fall, dividend yields rise, enabling investors to lock in higher yields on many top dividend stocks.
I’ve been capitalizing on the recent stock market correction by buying more shares of many of my favorite dividend stocks. Among those I recently purchased were Blackstone (BX 3.19%), Starbucks (SBUX 2.15%), and Verizon (VZ -0.32%). Here’s why I think they’re great dividend stocks to buy right now.
Cashing in on alternatives
Private equity giant Blackstone has lost nearly 30% of its value from the recent peak. That sell-off has driven its dividend yield up to 2.8%, more than double the S&P 500‘s current yield of 1.3%.
Blackstone isn’t your typical dividend stock. It doesn’t pay a fixed quarterly dividend like most companies. Instead, the leading alternative asset manager returns the bulk of its distributable income to investors each quarter via dividends and share repurchases. As a result of that dividend policy, its payment can fluctuate, sometimes significantly:
BX Dividend data by YCharts.
However, the payout has been on a generally upward trajectory over the past decade and a half. I expect the rising trend will continue as Blackstone grows its assets under management (AUM), fee-based income, and performance revenues.
Driving that view is the expectation that investors will continue to increase their allocations to alternative investments like private equity, real estate, and credit because they tend to generate higher returns with lower volatility than the public stock and bond markets. According to a forecast by Preqin, the global alternatives market will hit $30 trillion by 2030, up from $17 trillion at the end of 2023.
That growth should benefit Blackstone’s leading alternative franchises. With Blackstone’s stock down sharply amid the market sell-off, I could potentially earn an attractive total return as its price recovers and its dividend rises.
Taking another sip of this caffeinated income stream
Starbucks stock has slumped about 15% from its recent high, which has driven the coffee giant’s dividend yield up to 2.5%. Since initiating its payout, the company has delivered caffeinated dividend growth. Starbucks has increased its payment for 14 straight years, growing the payout at an impressive 20% compound annual rate.
Despite the seemingly ubiquitous nature of Starbucks stores, the company has plenty of room to continue expanding. It currently has more than 40,000 stores around the world. While the company has cut back on its initial plans to open 17,000 new stores by 2030, it still intends to open many new locations in the coming years.
In addition, the company wants to boost the profitability of its existing footprint. That’s part of a broad turnaround effort by new CEO Brian Niccol to get the brand back to what it does well. These drivers should enable the company to continue increasing its dividend.
Adding on a pullback
Verizon stock has declined by about 6% from its recent peak, which has helped push its dividend yield to 6.2%. The telecom giant’s monster payout is on a very firm foundation. The company generated a gargantuan $19.8 billion in free cash flow after capital expenditures last year. That easily covered the $11.2 billion it paid in dividends. Verizon used the cash it retained to strengthen its already rock-solid balance sheet.
Verizon is using its financial flexibility to buy Frontier Communications in a $20 billion deal to accelerate the expansion of its fiber network. That deal adds to Verizon’s heavy capital investment in expanding its fiber and 5G networks. Those investments should grow its cash flow, allowing Verizon to continue increasing its dividend. It delivered its 18th consecutive annual dividend increase late last year, the longest current streak in the U.S. telecom sector.
Capitalizing on opportunities to increase my dividend income
Stock market corrections can be great opportunities to enhance my dividend income. I recently capitalized on the current sell-off by adding to my positions in Blackstone, Starbucks, and Verizon. That should enable me to earn more income from their higher initial yields and higher total return potential as their stock prices recover in the future.
Matt DiLallo has positions in Blackstone, Starbucks, and Verizon Communications and has the following options: short March 2025 $80 puts on Starbucks. The Motley Fool has positions in and recommends Blackstone and Starbucks. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
