Equity markets have been bouncing all over the place to kick off the new year. Some folks may be concerned that valuations are stretched thin after back-to-back years of over 20% gains in the S&P 500 in 2023 and 2024.
If you're in that camp, it's important not to overhaul your investment strategy on a hunch. Still, you can ensure you are invested in companies and exchange-traded funds (ETFs) that can endure a sell-off and maintain or even raise their dividends.
Here's why these three Motley Fool contributors think ExxonMobil (XOM 0.90%), Illinois Tool Works (ITW 0.18%), and the JPMorgan Equity Premium Income ETF (JEPI 0.43%) stand out as reliable candidates to buy no matter what the market brings in 2025.
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ExxonMobil sees steady growth over the next six years
Scott Levine (ExxonMobil): Ripping more than 23% higher in 2024, the S&P 500 has continued climbing to start 2025. Many investors, however, are less than confident that the market's rise will extend throughout the year.
In fact, many investors are fortifying their portfolios, believing that a market sell-off is on the horizon. For those in this camp, ExxonMobil, along with its 3.6% forward-yielding dividend, represents a smart way to grease the wheels of your passive income stream with a resilient dividend payer.
Whether it happens next week, in several months, or next year, a market sell-off is certain to occur. And when it does, ExxonMobil stock can help ground your portfolio with a reliable source of dividend income.
For 42 consecutive years, this oil supermajor has maintained a streak of hiking its dividend -- a period during which there have been numerous market downturns. While this track record doesn't guarantee that the company will be able to extend its streak during future market sell-offs, it's certainly an encouraging sign.
Looking at the past five years, investors will find that ExxonMobil has been well-positioned to support its distributions. During this period, the company averaged a payout ratio of 86%, generating consistent free cash flow per share in excess of the dividend payments.
XOM free cash flow per share (annual); data by YCharts.
Over the next several years, the company sees steady growth. From 2024 to 2030, it expects earnings and operating cash flow to rise at compound annual growth rates of 10% and 8%, respectively, thanks in part to greater production from its Permian Basin assets. Should it achieve these projections, it will be poised to continue boosting its dividends.
With extensive operations up and down the energy value chain, ExxonMobil is one of the leading oil dividend stocks -- a distinction it should retain for more years to come.
ITW is built to last
Daniel Foelber (Illinois Tool Works): At first glance, this industrial products and equipment company may seem like the opposite of a stock you would want to own during a market sell-off. Illinois Tool Works, commonly known as ITW, has exposure to the cyclical automotive industry, and sells food-processing equipment and other food equipment products; testing and measurement devices; welding equipment; and accessories, adhesives, sealants, and more.
In short, ITW is a highly diverse company that underpins the industrial economy. Its diversification is one of its strengths, especially amid a shift away from the conglomerate business model.
Each ITW segment has high operating margins and doesn't make up too large a share of the business. That way, the broader business can absorb a slowdown in a couple of segments.
In addition to its high margins and diversification, the company is a Dividend King with 53 consecutive years of dividend increases. This consistently makes the stock ideally suited for investors who look for predictable passive income flows and who want to avoid assuming a high yield is too good to be true.
Over-leveraged companies can feel pressure to cut their dividends to preserve capital and improve the underlying business if the market sells off because of an economic slowdown.
Despite various challenges, the company has been through several economic cycles and increased its dividend. Its last raise came in August 2024, a 7% hike. Its dividend increases over the last five years have all been between 6.5% and 7.4%, providing an element of predictability to the ITW investment thesis.
This may not be the flashiest company, but it's the exact kind of investment you'll want in your corner when equity prices are lighting up your screen in red. With a 2.3% yield and a 24.1 forward price-to-earnings ratio, Illinois Tool Works isn't a bargain, but it's worth the premium price if you're more interested in dividend quality than quantity.
A high-yield ETF for those seeking passive income
Lee Samaha (JPMorgan Equity Premium Income ETF): Investors looking for a relatively safe way to generate passive income even in a downturn might be interested in looking at the JP Morgan Equity Premium Income ETF.
The fund currently yields 7.3% via investing at least 80% of its assets in equities. However, its equity investments are not made based on their dividends.
Instead, the ETF's primary method of generating monthly income comes from investing up to 20% of its assets in equity-linked notes (ELNs) that sell monthly call options linked to the S&P 500 index.
A call option on an index is simply the right to buy the index at a specified price (the strike price) up to an expiration date. Investors buy call options (paying a premium) when they expect the index to rise above the strike price. Conversely, they sell call options (picking up a premium in the process) when they expect the index to stay below the strike price or decline.
As such, when the S&P 500 performs moderately or declines, this ETF will pick up premiums from the ELN strategy. Therefore, if there is a sell-off in the index in 2025, this ETF should perform relatively well and continue to generate monthly income for investors.
