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3 Stocks to Hold Even if the Market Turns More Bearish

Motley Fool - Sat Jun 18, 5:15AM CDT

After teetering on the brink for the past few weeks, the stock market officially plunged into bear market territory this week, falling more than 20% from the recent peak. Many investors believe it could fall even further, given all the uncertainty in the global economy these days.

The constant selling in the stock market likely has some investors thinking about throwing in the towel and selling their stocks. However, bear markets are fairly common, occurring every four years on average. Because of that, investors should continue to hold on to high-quality stocks, especially those that have great long-term growth prospects. Three stocks our contributors think investors should keep holding even if the market grows more bearish are Enbridge(NYSE: ENB), Brookfield Renewable (NYSE: BEPC)(NYSE: BEP), and Brookfield Infrastructure Partners(NYSE: BIPC)(NYSE: BIP).

Dividends... and more dividends

Reuben Gregg Brewer (Enbridge): Bear markets are gut-wrenching affairs that test even the most stern of investment hearts. You can't help but ask yourself, "When will the carnage end?" My way of dealing with the uncertainty is to distract myself with big, fat dividend checks. Like the one I collect every quarter from Enbridge. The Canadian midstream giant is offering investors a generous 6.2% dividend yield today, which is more than four times what's on offer from the S&P 500 index.

Enbridge's shares are likely to rise and fall along with the market, but the dividend will just keep chugging along. I'm confident of that fact for a couple of reasons. First, Enbridge has increased its dividend annually for 27 consecutive years. Management has clearly proven that it believes in returning value to shareholders via dividend growth in both good and bad markets. Second, the company currently expects to generate $2 billion in cash flows above what it needs to run its business, pay the dividend, and invest in its existing slate of capital investment projects. Right now the plan is to buy back stock, but that money is a huge protective cushion should business headwinds arise. All in, there's little reason to worry about the dividend.

Enbridge is heavily reliant on moving carbon fuels, so what about the long term? Part of the investment plan is to keep building out a clean energy portfolio. So Enbridge is also prepared to deal with the broader energy transition that's taking place. If you can't stomach watching stocks drop, then consider buying Enbridge and shifting your focus to collecting fat dividend checks instead.

Keep the long-term view in mind

Matt DiLallo (Brookfield Renewable): The world needs to invest more than $150 trillion over the next 30 years to decarbonize the global economy. That decarbonization megatrend will create unparalleled commercial opportunities for companies focused on reducing carbon emissions.

One of the leaders working to capitalize on this megatrend is Brookfield Renewable. It has one of the largest renewable energy portfolios in the world. It sells this power to utilities and corporate buyers under long-term contracts, enabling it to generate stable cash flow. Brookfield Renewable uses a portion of its cash flow to pay a 3.7%-yielding dividend while retaining the remainder to help power growth.

Brookfield believes it can grow its cash flow per share by a more than 10% annual rate through 2026. The company already has most of that growth lined up. Inflation-driven rate increases, higher power prices, and its extensive development pipeline give it high visibility into delivering 6% to 11% annual growth during that timeframe. Meanwhile, acquisitions could add up to another 9% to its bottom line each year. These growth drivers should power 5% to 9% annual dividend growth.

The company expects to continue growing over the longer term. Its goal is to develop an additional 21 gigawatts (GW) of clean energy capacity by 2030, doubling the size of its current portfolio. Brookfield has built up an eye-popping development pipeline totaling 69 GW of projects, giving it plenty of power to achieve that bold goal. Meanwhile, it has one of the best balance sheets in the renewable energy sector, providing ample financial capacity to make these investments.

While the stock market is bearish these days and could turn even more pessimistic in the near term, the long-term outlook for renewable energy remains bright. Because of that, investors should resist any urge to sell Brookfield Renewable since it has the power to produce attractive total returns over the long term.

An inflationary slowdown won't hurt this dividend stock

Neha Chamaria(Brookfield Infrastructure Partners): What we're witnessing right now is an inflation-induced market sell-off. Infrastructure assets have historically generated good returns during periods of high inflation, especially if the economy continues to grow. Yet, even if the U.S. were to slip into a recession and drive the markets lower, you'd still want to hold a stock like Brookfield Infrastructure, partly for its dividends that can come in handy during tough times.

There's a reason behind that: Brookfield Infrastructure generates the bulk of its funds from operations (FFO) under long-term contracts, and most of these contracts have inflation-adjustment clauses. So these contracts typically provide for a fixed periodic percentage hike, but if inflation exceeds the fixed percentage, the contract price is adjusted for the same.

As it is, Brookfield Infrastructure can generate stable cash flows as it mainly owns and operates assets in highly regulated industries like utilities, railroads, and toll roads, and midstream oil and gas. Top it off with its inflation-indexed revenue, and you have a company that can not only survive but thrive in a high inflationary environment.

That also means dividends you can bank on, regardless of where the markets head. Brookfield Infrastructure has a solid dividend track record, having grown its dividend at a compound annual rate of 10% since 2009. Even if the economy slows down and the market sinks further, you can expect Brookfield Infrastructure to still increase its dividend annually by at least 5%. With the stock already yielding a good 3.7%, there's nothing like it if you can earn steady passive income even during a bear market.

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Matthew DiLallo has positions in Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, Brookfield Renewable Corporation Inc., Brookfield Renewable Partners L.P., and Enbridge. Neha Chamaria has no position in any of the stocks mentioned. Reuben Gregg Brewer has positions in Enbridge. The Motley Fool has positions in and recommends Brookfield Renewable Corporation Inc. and Enbridge. The Motley Fool recommends Brookfield Infra Partners LP Units, Brookfield Infrastructure Corporation, and Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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