2 overtaxed dividend stocks to buy if there is a sell-off in the stock market

There’s a boom coming in North America and it’s just getting started. Companies are bringing production back to the US and infrastructure is being upgraded.

How big is that? How about the $1.4 trillion in announced projects, each individually worth $1 billion or more, since the start of 2021. Most of these projects haven’t even started yet, which is a huge opportunity for companies such as Nope (NOT -1.80%) and Eaton (ETN 0.51%). If their stock goes on sale, you’ll probably want to jump on it.

Nucor is a leading North American steel producer

Nucor is one of the largest and most diversified steel companies in North America. It uses mini electric spring mills that are flexible enough to be raised and lowered with demand.

This helps Nucor sustain strong margins throughout the steel industry cycle. Companies using older blast furnace technology tend to experience deep losses during cyclical industry downturns.

Image source: Getty Images.

Now, there are over 440 big projects on the way. Most, if not all, will need some kind of steel. Nucor won’t win contracts for every project, of course, but it’s very likely to see strong demand from the ones it does win. And that should help keep revenue and earnings strong for this industry leader.

But the real draw here is that Nucor is a dividend king, with more than five decades of annual payout increases. Talk about supercharged dividend stocks! The most interesting part is that he managed to do this despite the huge changes that the steel industry saw during this period.

There is an oversupply today due to cheap imported steel (which the domestic industry believes is being unfairly dumped at low prices). This has pushed Nucor’s stock price down about 30% since the start of 2024. It looks like the stock is on sale right now, for those thinking long term.

But steel is highly cyclical, and the share price fell nearly 60% during the brief recession that came with the pandemic. If Nucor drops this much again due to a bear market (and/or a recession), you should probably consider backing up the truck.

Eaton is growing its dividend at an attractive rate

Eaton is not a dividend king, with a streak of “only” 15 years. However, this is not due to a pay cut; it was simply a pause in growth while the company digested a transformational acquisition.

This business is what has positioned the company as a major supplier of power management equipment. That, in turn, is what has positioned Eaton to benefit from the $1.4 trillion mega-projects set to ramp up over the next few years.

Eaton has a global reach and a massive product portfolio. With over 100 years of history behind it, the company has long changed and adapted to the world around it.

So what’s happening here isn’t all that shocking. Eaton does what Eaton has done for a very long time. And along the way, it has continued to reward investors with dividend increases.

Over the last decade, the dividend has grown at an attractive rate of 7% annually, which is about twice as fast as the historical rate of inflation. This means that the purchasing power of Eaton’s dividend has increased over time.

Shares of Eaton are down about 10% from recent highs. But declines of 20% to 30% are not uncommon. If the market sells off and the stock gets even cheaper than it is today, you’ll probably want to take a very close look at the stock.

Remember: It’s set to benefit heavily from the construction boom. To put a number on that, the company’s stock in its Americas division is up 29% year over year. The book-to-bill ratio is 1.2 times strong, meaning it adds more to the backlog than it does work.

This is a trend that will help power gains and there is no indication that it is likely to reverse anytime soon.

Already down and it might not be over yet

Wall Street often throws the baby out with the bathwater during market selloffs. So while Nucor and Eaton are already down from their recent highs, there could easily be more room for these strong dividend stocks to fall.

If they do, given the strong outlook for North American megaprojects, you’ll probably want to consider adding one or both to your portfolio.