2022 has turned into one of the most difficult years for investors in decades. The past year has seen inflation approach the highest levels in four decades, catching global central bankers flat-footed and reacting too late, pushing up interest rates to decade-plus highs. Stock indices have spent basically all year down, and things could get worse if we see continued rate increases and a painful recession.
But investors shouldn't be so quick to give up on stocks. It's been brutal, and it could get worse. But stocks remain one of the best ways to generate long-term wealth, and selling when the market is down so much has never been a winning strategy. Instead of selling in fear, making high-quality dividend stocks like Clearway Energy (CWEN -0.65%) (CWEN.A -0.85%), Texas Instruments (TXN -0.29%), and Tanger Factory Outlets (SKT -1.42%) holdings in your portfolio, and holding them, is a better move.
The recession-resistant power of, well, power
Energy bills are skyrocketing heading into the winter. This is going to be painful for consumers and utilities alike, many of which cannot pass along all of the higher cost of gas they burn in gas plants. However, it's another reminder why the transition to more renewables and energy storage is a winning strategy, and why Clearway Energy should remain a winning investment. Clearway may not be a household name, but its customers -- large electric utilities -- are.
Clearway's core business is selling electricity from its wind and solar plants to utilities on long-term contracts. It operates more than 4 gigawatts (GW) of wind and solar power capacity, which generate the vast majority of its cash flows, along with a small amount of efficient natural gas. But its focus is wind and solar: Earlier this year it sold its thermal power business to KKR for $1.46 billion, and it has already deployed over half of that to grow its wind and solar assets.
CWEN.A Dividend Yield data by YCharts
Looking forward, Clearway continues to build a bigger, more cash-flowing business. Its goal is to grow the dividend 5% to 8% per year, and management says its recent moves should allow it to grow the payout toward the higher end of that range through 2026. With a yield already above 4% at recent prices, this recession-resistant business is compelling to buy right now.
Everybody loves a discount
About five years ago, Tanger Factory Outlets was a mess. Its balance sheet was loaded with debt after growing too quickly, and in less than ideal locations. Luckily, it spent the years before the coronavirus pandemic selling off its worst properties and paying down the debt. As a result, it was relatively lean, generating solid cash flows, and had a strong balance sheet when the world -- and basically every retail location in it -- was forced to close in March of 2022.
Since Tanger had already gotten its house in order, it was able to tap its revolving credit facilities, getting plenty of cash in the bank to cover expenses during the shutdown. It also chose to put its dividend on hold, but the company was able to come through a once-in-a-century event largely unscathed. Since then, it's been able to pay down that debt again, and is back to generating plenty of cash as customers flood its outdoor, premium discount malls.
SKT Total Long Term Debt (Quarterly) data by YCharts
It has also returned to growth. So far this year it has added two new properties, seen occupancy approach 95%, and tenant sales per square foot reach record levels. While traditional indoor malls have struggled, Tanger's outdoor discount properties have become increasingly popular with both shoppers and tenants. It doesn't rely on massive anchor stores, its locations are easily retenanted, and discount shopping is appealing in any economic environment.
Plus, the dividend is back and growing. At recent prices, investors earn a 5.6% yield, and the payout is likely to continue growing as management takes a more steady, methodical approach to expansion this time around.
Don't let the down-cycle make you miss out on the mega-trend
Semiconductor stocks are taking a beating. After the pandemic caused a spike in demand -- and also caused the supply chain snarl that crashed the industry's ability to meet it -- we are now in a downturn. Everyone needed another computer, webcam, and other semiconductor-powered items to work from home in the past couple of years. But now everyone is well-equipped in that regard, and several segments that were in high demand last year are high and dry now. Add in the economic downturn, and the semiconductor business has gone from boom to bust.
But tossing chip stocks now is stale thinking. The long-tail trend is still strongly for growth. Sure, we all have a webcam in every room now, but more and more things in our lives will need semiconductors in the years to come. Texas Instruments in particular is worth buying. The company focuses on an underappreciated niche, making analog semiconductors. This may sound like outdated technology, but analog semiconductors are crucial to how the high-powered semiconductors in everything from your iPhone to heavy machinery interface with the real world. Whether it's managing power, or sending an audio, video, or data signal, Texas Instruments' semiconductors are critical.
It's also incredibly profitable; with a multi-decade lead on building out its scale, it has strong cost advantages, and serves more than 100,000 customers globally. Chances are, it already makes the analog chip you need, and in many cases, continues to make the exact same chip for decades at a time. At recent prices, its dividend yield is almost 2.9%, the upper end of its average yield over the past decade by a lot. That might sound paltry, but the payout has increased a whopping 491% since 2012 and investors have seen their investment gain in value by more than seven-fold. The best time to add Texas Instruments to your portfolio is when the market is down on semiconductor stocks, like now.
