1 Superstar Dividend Growth Stock to Buy if the Market Crashes

The stock market has entered a new period of increased uncertainty and volatility following the Trump Administration's desire to reshape America's trade policies. While the market hasn't crashed outright, it has experienced multiple sessions of sharp losses, as well as dramatic rebounds.

Some stocks, such as Zoetis (NYSE: ZTS), seemingly never falter. The stock has traded at an average of 41 times its earnings for the past decade. However, if a crash does occur, it could finally provide investors with the opportunity to buy shares at a significant discount.

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Here is why the market holds Zoetis in such high regard and why investors should consider loading up if the market heads lower.

A leader in a rapidly growing healthcare niche

Pharmaceutical giant Pfizer created Zoetis when it spun off Pfizer Animal Health in 2012. Zoetis is a leading animal healthcare company. It develops and sells medicines, vaccines, diagnostics, genetic tests, and devices for treating livestock and pets. Zoetis is a global company with annual sales of $9.3 billion.

Animal health is a rapidly growing niche within the broader healthcare industry. Global population growth is driving a rise in demand for animal protein. Additionally, younger generations in developed markets, especially in the United States, spend more on companion animals than older generations. A Harris poll found that millennials and Gen Z spend over twice as much annually on pets as Baby Boomers.

Zoetis projects the animal health market to grow from $48 billion in 2023 to $75 billion to $85 billion by 2033. The company leads or competes across the industry with specialties in companion animals, cattle, and fish. Zoetis has roughly doubled its annual sales over the past decade.

An emerging dividend growth rockstar

Companies have different ways of sharing profits with investors, and Zoetis has honed in on the dividend. The company paid its first dividend in 2013 and has raised it every year since then.

The stock yields just over 1.3% today, but it has grown at a breathtaking pace, an average annual rate of 21.4% over the past five years. That won't last forever, but Zoetis could increase its dividend faster than inflation for the foreseeable future. The dividend payout ratio remains at just 33% of 2025 earnings estimates, and analysts expect Zoetis to grow its earnings by 10% annually over the long term.

It's not flashy, but a company that doubles its dividend every three to five years can produce staggering wealth when it compounds over a decade or two. Zoetis's leadership in the expanding animal health field represents a durable growth runway for investors to look forward to.

A stubbornly expensive stock could begin to break down

At this point, it's becoming clear why Zoetis stock always seems expensive:

• Leader in a growing niche market.
• Double-digit business and dividend growth.
• Gen Z and Millennial trends favor Zoetis.
• Recession-resistant healthcare sector.

And, to be clear, Zoetis almost always trades at a lofty valuation. The stock's price-to-earnings (P/E) ratio has averaged over 41 for the past decade. Sure, blue chip dividend stocks often trade at a premium valuation, but that's steep, considering the business has a projected 10% annualized growth rate.

However, that valuation has begun to break down:

ZTS PE Ratio data by YCharts

On the one hand, Zoetis is arguably a buy today, given that it is at its lowest valuation on record, at 27 times earnings. On the other hand, Zoetis still has a PEG ratio of 2.7, which isn't exactly a bargain. I generally buy high-quality stocks at PEG ratios up to 2.0 to 2.5, so Zoetis could still decline further if the market continues to tumble.

So, what should investors do?

Admittedly, it's hard to pass up Zoetis at such a discount to its historical averages. If you buy, consider nibbling slowly and saving money in case the broader market crashes -- or at least continues to slide. There could still be more downside in Zoetis, and scoring shares at a P/E ratio of 20 or less could set investors up for years of market-beating investment returns, especially if it eventually retraces toward its decade averages.

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer and Zoetis. The Motley Fool has a disclosure policy.