This story has been updated with new charts based on the past days' trading.
Sooner or later all goods things come to an end.
This bull market is the second-longest in history and continues to reach new highs.
Bear markets typically anticipate a downturn in the economy by six to nine months, according to stock market theory.
Some companies, such as Dividend Aristocrats, actually perform well during bad times, while others are extremely affected. Dividend Aristocrats are stocks in the S&P 500 that have increased dividends every year for the past 25 straight years.
Here are 10 high-quality dividend stocks that are bear market beaters and how they do it.
Many of these blue-chip stocks are holdings in our Conservative Retirees dividend portfolio, which seeks to avoid dividend cuts, earn a 4% yield and preserve capital.
It starts with one of the world's singularly best-known consumer brands. There is hardly a place in the world where the product can't be found, and even if such a place exists, the Coke name and familiar green swirl bottle is well known.
The Coke brand is so ubiquitous, it overshadows the other 499 non-alcoholic beverages that the company sells in more than 200 countries throughout the world. In addition to the flagship Coke brand, others include Diet Coke, Fanta and Sprite.
The world is hooked on sugar, and that has been the case for centuries. The company has been expanding internationally for more than 100 years.
Even with competition from the likes of PepsiCo and the hundreds of new beverage alternatives introduced each year, Coca-Cola remains the world's largest beverage company.
PepsiCo is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells PEP? Learn more now.
Coca-Cola is highly profitable and generates huge amounts of cash. Operating margins are more than 20%, and operations have generated more than $10 billion in cash in each of the past three years.
Of the company's $91 billion in total assets, almost 25% is in cash.
What makes this even more impressive is the dividend payout ratio of 78% of earnings per share and 88% of free cash flow. Even after increasing the dividend consistently about 9% a year over the past 20 years, the money keeps piling up in Coca-Cola's bank account.
The $1.40-a-share dividend payout offers a 3.2% yield. The next increase will come at the end of the year.
It is little wonder why the Atlanta-based cola king is a staple in Warren E. Buffett's portfolio of dividend stocks. It is also not surprising that Coca-Cola has a dividend safety score of 99.
With growth, stability and yield, Coca-Cola truly is "the real thing."
During the financial crisis, Coca-Cola's revenue declined just 3%, and the company's renowned financial strength allowed for a dividend increase in 2008 and 2009.
Many companies performed much worse during the financial crisis, which highlights the recession-resistant business model enjoyed by Coca-Cola. The stock also fell 24% in 2008, outperforming the S&P 500 by 13 percentage points.
2. Duke Energy (DUK) - Get Duke Energy Corporation (DUK) Report
Based in Charlotte, N.C., Duke Energy is a diversified utility company operating in three segments in Canada, Latin America and the U.S. These are commercial (4% of sales), international energy (7%) and regulated utilities (89%).
Duke Energy ranks as the largest electric-power holding company in the U.S., where it does the bulk of its business.
The company operates like a utility, supplying energy to customers based on the cost of fossil fuel such as coal and oil.
During periods of economic weakness, energy consumption tends to slow for suppliers such as Duke Energy. However, in as much as fossil fuel costs also tend to decline, Duke Energy is able to maintain high levels of cash flow.
Duke Energy has paid dividends since 1926 and is a Dividend Achiever, meaning that it has raised its dividends each year for at least 10 consecutive years.
The payout has increased continuously since 2008, and the latest increase of 3.6% took place July 11. The indicated annual dividend of $3.42 a share offers investors a high yield of 4.3%.
In 2008, Duke Energy's sales declined by 4%. However, the company's financial strength was great enough to allow it to increase its dividend, maintaining a record of more than 10 consecutive years.
Many companies performed worse during the financial crisis, which means that Duke Energy might not be as sensitive to the economy's overall health as many other dividend stocks. Duke Energy's stock fell 22% in 2008, outperforming the S&P 500 by 15 percentage points.
3. General Mills (GIS) - Get General Mills, Inc. (GIS) Report
This company is one of the largest makers and marketers of consumer branded foods in the U.S. The company earns its way focusing on basic affordable foods featuring a laundry list of well-known brands.
It manages the business along lines of distribution: convenience store/foodservice (12% of sales), international (28%) and U.S. retail (60%).
Affordable prices and enormous diversification are the keys to the company's success since its founding in 1928.
The company's breakfast cereal brands include Cheerios, Chex, Cocoa Puffs, Fiber One and Wheaties. General Mills also owns Betty Crocker, Bisquick, Gold Medal, Haagen-Dazs, Yoki and Yoplait.
These are only a small fraction of the company's massive number of brands.
Demand for these brands is highly insulated from economic conditions. When bear markets arrive, even the bears need to eat.
Looking at the company's performance during the financial crisis, there was no sign of weakness, with sales and earnings growing in 2008 and 2009. Investors in General Mills were rewarded in 2008 with a 9% return, outperforming the S&P 500 by 46 percentage points.
General Mills offers investors an extremely safe dividend, with above-average income growth potential.
The annual payout of $1.92 a share offers investors a 2.7% yield. Dividends have grown 10.5% a year over both the past five- and 10-year periods.
The payout ratio is a healthy 66% of earnings per share and 57% of free cash flow, which is very reasonable, considering the company's business stability. For the fiscal year ended May 29, operating cash flow was $2.6 billion, with just $729 million needed for capital expenditures, providing plenty of free cash flow that can be used for continued dividend payments.
4. Johnson & Johnson (JNJ) - Get Johnson & Johnson (JNJ) Report
A quarterly dividend has been paid to J&J investors for almost 100 years. That is about the safest income found anywhere and a key driver behind the company's excellent dividend safety score of 99.
When times are tough, here is how J&J beats the pack.
The company is a triple threat, with consumer products (19% of sales), medical devices (36%) and pharmaceuticals (45%) making up the product line. These categories not only are defensive, but each group is highly diversified.
Consumer personal-care products are relatively low in price, rapidly consumed and not easily deferred. J&J's consumer brand names are some of the world's most familiar, including Band-Aid, Johnson's baby products, Listerine, Neutrogena and Tylenol.
The medical devices business is highly diversified, with leading positions in cardiovascular, diabetes care, orthopedics, surgery and vision care products.
The pharmaceutical segment consists of 16 top-selling prescription products. Just one of these, Remicade, which is used in the treatment of arthritis, represents as much 9% of volume.
J&J has increased its dividend payout continuously for 43 years. The last increase in the quarterly dividend was a 7% boost in April.
The new annual dividend rate is $3.20 a share, providing a yield of 2.7%.
Dividend growth has been an above-average 8.7% a year over the past 10 years and 6.9% a year over the past five. A safe retirement with J&J also means a growing payout.
J&J pays out just 56% of earnings. The company is highly profitable, with 25% operating margins, and it generates huge amounts of operating cash flow ($19 billion).
A payout ratio of as much as 75% wouldn't harm the company's ability to achieve the 6.5% earnings growth anticipated in coming years.
During the financial crisis, J&J's sales declined by 3%, and the company's financial strength allowed for a dividend increase. Many companies performed worse during this period.
J&J's stock fell 8% in 2008, outperforming the S&P 500 by 29 percentage points and suggesting that it could provide greater downside protection in the event of another bear market.
5. McDonald's (MCD) - Get McDonald's Corporation (MCD) Report
The days of the 15-cent hamburger, introduced in 1940 by Ray Kroc, are long gone, but McDonald's miraculously remains alive and in sound health. In an industry known for changing and fickle consumer tastes, the company's mere survival is a measure of management dedication and quality.
There are now more than 36,525 restaurants displaying the iconic golden arches. Some 30,081 are franchised, leaving the company with just 18% of all outlets to own.
Coca-Cola may be one of the best consumer brands in the world, but McDonald's holds that distinction in fast-food restaurants.
For all its controversy, fast food is part of the U.S. culture. It is also a growing part of the global diet as well.
Fast, affordable and served under high standards of cleanliness has been the formula from the beginning. Amid bear markets, these very features allow consumers to enjoy a meal that doesn't stretch the budget.
These qualities came in handy during the financial crisis. The company's sales declined just 3%, but its excellent cash flow generation and strong balance sheet allowed it to increase the dividend, which has risen every year since 1976.
The defensive qualities also showed in the stock, which provided a 9% positive return in 2008, outperformed the S&P 500 by 46 percentage points.
The stock's yield of 3% and expected annual earnings growth of 10% make McDonald's a top dividend stock. The annual payout of $3.65 a share has grown 17.8% a year over the past decade and 8.8% a year over the past five years.
The payout ratio at about 70% of earnings per share and free cash flow could also be moderately increased, given the balance sheet strength and nearly $5 billion in annual free-cash-flow generation.
In past times, consumers have stretched the budget by trading down to private labels. But the superior performance of these leading P&G products and the exceptional brand loyalty insulates the impact of budget stretching.
What's more, all these products are already available at discounted prices at Walmart. At P&G, cleanliness is practically a religion.
The company is constantly seeking market dominance. No company invests more in consumer research, product development and brand advertising than P&G.
For example, one of its earliest products, Ivory Soap, is more than 100 years old.
Business outside the U.S. in 180 countries accounts for more than 60% of sales. Business segments include baby, feminine and family care (29% of sales), beauty (18%), grooming (10%), health care (11%) and laundry and household cleaning (32%).
The P&G philosophy of market dominance is especially intense in the highly competitive retail grocery, drug and mass merchandise space. Although there are many entrants, few have the power of the world's largest advertising and promotion budget.
P&G is a dividend machine, sending out checks in every one of the past 124 years. In each of the past 58 years, there have been increases.
The company has a near perfect dividend safety score of 99 and is a Dividend King, which are companies that have raised their dividend for more than 50 consecutive years.
Over the past 10 years, dividends have grown 9.2% annually and 6.8% a year in the past five years. P&G pays out a modest 59% of free cash flow, indicating that there is plenty of financial flexibility remaining.
The annual dividend payout of $2.68 a share offers investors a 3.1% yield, and management last raised the quarterly dividend by 1% this year.
P&G isn't as sensitive to the economy's overall health as many other dividend stocks. The stock fell 14% in 2008, outperforming the S&P 500 by 23 percentage points.
During this time, P&G's sales declined by 3%, but the company's financial strength was great enough to allow it to continue increasing its dividend.
Procter & Gamble is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells PG? Learn more now.
7. Realty Income (O) - Get Realty Income Corporation Report
Reality Income isn't a typical corporation. It is a real estate investment trust that invests in commercial properties in Puerto Rico and 49 states.
The company's $12.6 billion portfolio is diversified, not simply by geography but by business sector as well. Realty Income has long-term leases with 243 tenants spanning 47 different industries.
Like any other REIT, Realty Income must pay out at least 90% of taxable income to avoid paying taxes at the company level. What makes Realty Income different is that it pays dividends monthly.
By comparison with its peers, Realty Income is one of the safest monthly dividend-paying stocks.
Realty Income has a dividend growth streak dating back to 1994, indicating the level of consistency in management's investment performance. The annual payout of $2.39 a share offers an above-average yield of 3.6%.
Over the past decade, dividends have grown 5.4% a year and 5.8% a year over the past five years.
The company has proven itself to be well-insulated from economic difficulties. During the financial crisis, revenue declined only 1%.
Even so, the company's financial strength was sufficient to allow a dividend increase, keeping in place a record of increases lasting over 20 consecutive years. Meanwhile, the stock fell 8% in 2008, outperforming the S&P 500 by 29 percentage points and suggesting far-better-than-average protection in the event of another bear market.
8. Verizon Communications (VZ) - Get Verizon Communications Inc. Report
When it comes to connecting people and business in telecommunication, Verizon Communications is one of the world's largest and most respected companies. Wireless represents the lion's share of business at 70% of sales and 93% of operating income, while wire line brings in the remaining 30% of revenues and 7% of income.
Within these two categories reside a vast array of products and services, from voice and data services to broadband video, corporate networking and security solutions.
In short, Verizon Communications is a highly diversified giant serving hundreds of millions of people in the U.S. and around the world. The company's greatest strength is it wireless business, where it is generally ranked number one throughout the U.S. for network coverage.
Telecom is a utility that most people can't live without. Verizon Communications has one of the wireless industry's lowest churn rates, so customers generally stay with the carrier for many years.
It is true that phone bills don't always get paid on time when doom and gloom hit, but that happens very rarely.
Verizon Communications was created by the 1984 breakup of AT&T and has been paying quarterly dividends continuously since. Increases have been made each year since 2006.
Over the past 10 years, dividend growth has averaged 3.8% a year with a 2.6% annual growth rate in the past five years.
The latest quarterly dividend of $0.565 a share was declared on July 6. An increase to $0.575 in the third quarter would be consistent with patterns of previous increases.
Verizon Communications pays out a conservative 57% of free cash flow while retaining ample reserves for capital expenditures or acquisitions. In its last fiscal year, Verizon Communications generated more than $21 billion free cash flow, compared with $8.5 billion in dividend payments, insuring both the safety of the dividend and the ability to increase future payouts.
During the financial crisis, the wireless business came in handy when the company's sales fell just 1% in fiscal 2010. The company's financial strength was great enough to allow it to increase its dividend, continuing its consecutive string of dividend raises since 2006.
Simply put, the company's business is less sensitive to the economy and better able to power through difficult times. The stock fell 18% in 2008, outperforming the S&P 500 by 19 percentage points.
All this suggests that it Verizon Communications could provide greater downside protection for conservative dividend investors in the event of another bear market.
9. Walmart (WMT) - Get Walmart Inc. Report
Economists refer to "the substitution effect," but the rest of us know it as stretching the budget. Either way, when times get tough, the tough go to Walmart.
And that is just one distinction held by Walmart, the world's largest retailer.
The company boasts 11,000-plus stores, more than $480 billion in sales and $200 billion in assets. No other company comes close to matching what Sam Walton created when he founded the company in July 1962.
Walmart employs a staggering 2.3 million employees worldwide, making them also the biggest single employer anywhere. Walmart may not pay the highest wages, but it continues to hire without regard to economic conditions.
In bear markets, Walmart is a source of jobs.
The days of rapid growth in the U.S. are well behind it, as the law of large numbers is taking over. Over the past few years, EPS has been growing less than 1%.
Rising health care and minimum wage costs have dented profit growth, and online competition remains fierce.
However, that doesn't mean an end to dividends or growth. Due to the flattening in earnings just noted, the payout ratio has inched up.
But after starting from just 26% in 2011, Walmart's payout ratio is still just 44%, leaving plenty of room for continued dividend growth.
The $2-a-share annual dividend payout offers a yield of 2.7%. This is a case where taking a bit lower yield may work out better in the long run.
Dividend growth has compounded at 12.6% annually over the past decade and 10.1% per year over the past five years. If capital isn't needed for expansion, management will be under pressure to return it to shareholders.
Walmart has $7.6 billion in its bank account, and debt is a reasonable 37% of total capital. This provides the company with plenty of flexibility to continue paying and moderately growing its dividend.
The company rode out the financial crisis with unusual strength, increasing sales by 7% in fiscal 2009 and 1% in fiscal 2010. The company continued its record of dividend growth as well.
Investors were rewarded in 2008 with the stock returning 20% and outperforming the S&P 500 by a staggering 57 percentage points. This suggests that Walmart could be one of the better dividend stocks to hold in the event of a bear market.
10. Welltower (HCN)
Nobody likes to grow old, but when it happens, it is comforting to find that high-quality care is available. When that time arrives, the first name that comes to mind might be Brookdale, Oakmont Senior Living or Sunrise.
The financial partner behind many of these top-quality names is Welltower. With more than 1,400 properties, Welltower is the biggest health care-dedicated REIT in this large, growing and highly fragmented field.
Senior housing accounts for nearly 70% of revenue. The balance is from post-acute care and outpatient medical and includes brands such as Genesis HealthCare.
These latter two services help hold down the cost of health care by providing an alternative to higher-cost impatient hospital care.
Occupancy rates of 90%-plus are typical at the company's tenant's properties. Demand is being stoked by the aging population, with 10,000 American each day reaching 65.
Some 90% of occupants are on private pay, so there are virtually no Medicaid-related issues. That puts Welltower in a rare spot in the health care world, and it helps insulate the business from economic sensitivity and regulatory risks.
Welltower pioneered REITs in health care properties. The company has been in senior living for more than 45 years, so it has survived good and bad times.
In the past five years, real estate assets have more than tripled to $29 billion. Along the way, Welltower has expanded into Canada and the U.K.
In addition, operating profit margins in recent years ranged between 19.6% and 30.6%, a very profitable level.
As a REIT, the company maintains elevated payout ratios for tax purposes. Welltower's funds from operations' payout ratio over the last 12 months stands at a reasonable 78%, and the $3.44-a-share payout offers investors a 4.5% yield.
Dividend growth will, of course, match earnings growth in the future, due to REITs' high payout ratios. The consensus calls for earnings to grow 7% to 8% a year, almost regardless of economic conditions, supporting continued income growth.
During the financial crisis, Welltower's sales actually grew each year. The company's business is less sensitive to the economy than many others, and it is better able to power through difficult times.
The dividend appears to be safe. However, it should be noted that the company operates in an industry that is sensitive to interest rates and where property prices are sensitive to supply and demand.
Regardless, during economic downturns, companies with good cash flow or borrowing power are often able to make acquisitions at favorable prices.
This article is commentary by an independent contributor. At the time of publication, the author was long GIS, JNJ, MCD, PG and VZ.