Worried About a Stock Market Sell-Off? Consider This Rock-Solid Dividend Stock and 2 ETFs for Passive Income

Key Points

• NextEra Energy has a long history of increasing its dividend -- despite occasional market downturns.

• The sell-off in the consumer staples sector offers a buying opportunity via one ETF.

• Another ETF offers a strategy that's hard to replicate for retail investors.

• 10 stocks we like better than NextEra Energy ›

With April's brutal sell-off drifting further and further in the rearview mirror, it's easy to think that all stocks will do is go up. But long-term investors know that market sentiment can turn on a dime. So it's best to have a portfolio with high-conviction stocks and/or exchange-traded funds (ETFs) you can count on, no matter what happens in the broader market.

Another way to offset some of the risk of stock-market volatility is to bolster your passive income stream. Dividends allow you to book a return without having to worry about what stock prices are doing, which can be especially powerful during a market sell-off.

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If you're looking to fortify your portfolio, here's why you may want to consider NextEra Energy (NYSE: NEE), the Vanguard Consumer Staples ETF (NYSEMKT: VDC), and the JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ: JEPQ) as top buys now.

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Even during a market sell-off, NextEra Energy can juice your passive income stream

Scott Levine (NextEra Energy): The fear of a steep market downturn can rattle the nerves of even the most experienced investors. Whether you have decades of investing experience or you just purchased your first stock or you're somewhere in between, fortifying your portfolio with a reliable dividend stock is a great strategy. And NextEra Energy, with its 3% forward-yielding dividend, is just the stock for the job.

A behemoth in the utilities industry, NextEra Energy currently ranks as the largest utility based on market capitalization. While this title is certainly impressive, it's hardly the most compelling reason the stock is a great choice for conservative income investors. Instead, the more alluring factor is NextEra's steadfast dedication to rewarding shareholders: For 31 consecutive years, it has raised its dividend. Thanks to its resilient business model, the company has continued to return capital to shareholders via dividends despite periods of market volatility.

With the lion's share of NextEra Energy's business coming from regulated markets -- about 75% of its earnings before interest, taxes, depreciation, and amortization (EBITDA) in 2024, according to Fitch Ratings estimates -- management has excellent insights into future cash flows and profits. Consequently, the company is able to plan accordingly for capital expenditures as well as dividend payments.

NextEra Energy projects steady annual growth in adjusted earnings per share (EPS), from a range of $3.45 to $3.70 in 2025 to $3.85 to $4.32 in 2027. Moreover, it expects to raise the dividend about 10% annually. Although some may balk at the generous raise, it's important to recognize that the company has averaged a 61.1% payout ratio during the past 10 years, suggesting the dividend is well-protected.

For investors eager to power their portfolio with a reliable income stock, NextEra Energy is an excellent option right now.

This ETF is chock-full of high-quality dividend stocks

Daniel Foelber (Vanguard Consumer Staples ETF): The significant underperformance of the consumer staples sector relative to the S&P 500 year to date showcases the duality of the stock market right now.

Excitement about the innovation and efficiency potential of artificial intelligence is driving capital expenditures from top tech companies. The industrial sector is booming, due to a cyclical recovery and the onshoring of industrial goods and services amid tariff risks. Even the traditionally low-risk, high-yield utility sector is outperforming the S&P 500.

But at the same time, consumer spending is under pressure due to relatively high interest rates, inflation, and cost-of-living challenges. Consumers are pulling back on discretionary purchases, as evidenced by a sell-off in many restaurant stocks. And consumers are adjusting some of their buying behavior for staples, moving to value-oriented brands.

Now is a great time for investors to load up on beaten-down dividend stocks in consumer staples. And one simple way to do so is through a consumer staples sector ETF.

The Vanguard Consumer Staples ETF has held up surprisingly well given the sell-off in many of its holdings. A big reason for its resilience is the fund's 12.9% weighting in Walmart (NYSE: WMT) and 12.5% in Costco Wholesale (NASDAQ: COST). Despite the rally driven by megacap growth stocks in the S&P 500, Walmart and Costco have both outperformed the S&P 500 during the past three-year and five-year periods. The ETF's concentration in these companies makes it a good buy for investors seeking winning names in the sector, even though both have expensive valuations. Just under half the ETF is invested in these two companies plus Procter & Gamble, Coca-Cola, and PepsiCo.

Another benefit of the ETF is its low expense ratio of just 0.09%, only a bit higher than the Vanguard S&P 500 ETF's (NYSEMKT: VOO) expense ratio of 0.03%. But while the Vanguard S&P 500 ETF has a recent price-to-earnings (P/E) ratio of 27.4 and a current dividend yield of just 1.2%, the Vanguard Consumer Staples ETF has a lower P/E at 24.5 and a yield more than a full percentage point higher at 2.3%.

Add it all up, and this consumer staples ETF is a solid buy for investors looking for a reliable and diversified source of passive income.

This ETF has an excellent track record of generating monthly dividends

Lee Samaha (JPMorgan Nasdaq Equity Premium Income ETF): This J.P. Morgan ETF has a 12-month rolling dividend yield of 11.2%, and pays dividends monthly. Its strategy involves holding up as much as 80% of its assets in Nasdaq-100 equities, and up to 20% in equity-linked notes (ELNs) that sell call options on the Nasdaq-100 index.

A call option is simply the right to buy (in this case) an asset at a specified price within a specific time frame. Buyers of call options are typically bullish and looking for the index to go up, while call option sellers pick up the premiums charged on the option, hoping that the index doesn't rise enough for the option to be exercised.

That means the ETF's equity holdings perform well when the market does, but it can lose money on the ELN strategy. Conversely, when the market declines, the ELNs do fine, but the equities fall. The idea is to produce a low-volatility strategy with a consistent stream of monthly income, while getting underlying exposure to equities.

For the sake of brevity, I won't go into more detail here, especially because there's a more in-depth analysis of the ETF and its sister ETF elsewhere. Still, one fascinating and surprising thing to note about the Nasdaq-100-focused strategy of this ETF is that it performs better than an S&P 500-focused strategy when there are low-single-digit percentage losses in both indexes. This suggests the ETF may be more suitable in low-volatility markets, as it can generate monthly income during market declines while also generating overall positive returns. Those qualities might suit many investors.

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JPMorgan Chase is an advertising partner of Motley Fool Money. Daniel Foelber has positions in JPMorgan Nasdaq Equity Premium Income ETF and Procter & Gamble. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale, JPMorgan Chase, NextEra Energy, Vanguard S&P 500 ETF, and Walmart. The Motley Fool has a disclosure policy.