Dividend stocks perform well in market corrections.

These stocks are in three defensive sectors.

10 stocks we like better than Coca-Cola ›

Let’s face it, the market right now is expensive and maybe even overvalued.

The Shiller Cyclically Adjusted Price Earnings Ratio (CAPE ratio) stands at 39.6, its second-highest peak of the past 140 years. That’s higher than it was on the eve of the Great Crash of 1929, but below where it stood before the internet bubble burst of 1999-2000.

That would suggest that a correction is coming, probably sooner rather than later. And corrections of 10% are extremely normal for the stock market. In fact, they’re relatively common. The S&P 500 index has experienced an average annual correction of at least 10% every year since 1950. And there is a 20% correction – usually called a bear market – every three to five years, on average.

So if you assume a correction – or worse, a bear market – is around the corner, what’s the best way to position your portfolio for such a scenario?

Well, defensive sectors like healthcare, consumer staples, and utilities tend to perform the best during corrections and bear markets.

And dividend stocks tend to thrive in sideways and bear markets. Plus, they pay income.

I’ve selected a handful of eight stocks – a kind of mini portfolio – that should be well positioned for a market drawdown of any type. These stocks are in those three defensive sectors mentioned above and they’re all among an elite group of stocks called Dividend Kings, which means they have increased their dividend payout for 50 consecutive years. Clearly these companies are committed to maintaining and growing their dividends.

Best of all, all of these stocks carry a dividend yield that is well above the S&P 500 index yield of 1.25%.

First is Coca-Cola (NYSE: KO), the global king of beverages. The stock has a solid 2.9% dividend yield, it’s in the consumer defensive sector, and it has increased its dividend for 63 consecutive years. Right now it trades at around $69.

Next is Procter & Gamble (NYSE: PG), another consumer defensive stock with many popular brands – from Tide to Charmin and Pampers – that consumers will continue to purchase in good economies and bad alike. Its yield is 2.86%, and it has upped its dividend 69 years in a row. Price of one share: $147.

Then let’s pick up Johnson & Johnson (NYSE: JNJ), which is in the healthcare sector with products like Band-Aid, Benadryl, and Acuvue. The stock yields 2.7% and the dividend-boosting streak here is 62 years. One share goes for about $187.

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