The best recession-proof stocks can withstand high inflation and rising interest rates that threaten to push the economy into a downturn as soon as late 2022.
The top dividend stocks for a recession have pricing power to pass through inflating costs, low debt to protect from higher interest rates, and essential products that generate steady cash flow.
We analyzed 20 recession-proof stocks that possess these traits and have:
- A dividend yield near 3% or higher
- Paid uninterrupted dividends for at least 20 years (including 7 stocks with 100-plus-year streaks)
- Outperformed the S&P 500 during the 2007-09 financial crisis
- A Safe or Very Safe Dividend Safety Score™
Let’s check out 20 of the best recession stocks with dividends that can help investors generate reliable income in retirement and stay the course.
20 Best Recession-Proof Dividend Stocks
The recession-resistant stocks below are ordered by how many consecutive years they have maintained or increased their dividends, starting with the shortest streaks.
Recession-Proof Stock #20: Flowers Foods
Sector: Consumer Staples – Packaged Foods and Meats
Dividend Yield: 3.1% (as of 11/8/22)
2007-09 Recession Return: -1% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 20 years
Founded in 1919, Flowers Foods (FLO) is the second-largest producer of packaged bakery foods in the U.S. The business sells a variety of breads, buns, rolls, tortillas, and snack cakes under brands such as Nature’s Own, Wonder Bread, Dave’s Killer Bread, and Tastykake.
Source: Flowers Foods
When times get tough, people still have to eat. And baked goods such as bread are an important part of the diet for nearly every American household.
This recession-proof quality limited Flowers’ sales decline to 2.6% during the 2007-09 financial crisis, and management even raised the dividend by 17% in 2009. Shares of Flowers lost just 1% compared to the S&P 500’s -55% decline.
Besides selling a staple product, Flowers has worked to remain a leader in the U.S. fresh bakery market by developing a portfolio of strong brands over many decades.
The firm’s Nature’s Own brand was introduced in 1977 and is now the number one bread in America thanks to the reputation it has built by never using artificial colors, flavors, or preservatives. Similarly, the Tastykake brand has been around since 1914, and Wonder Bread enjoys 98% consumer awareness.
Flowers also enjoys around 70% market share in organic fresh packaged bread with its Dave’s Killer Bread brand leading the pack, positioning the business well for consumers’ shifting preferences for healthier, more natural foods.
The company’s network of bakeries serves as another advantage since supermarkets, mass merchandisers, restaurants, and other customers desire the freshest baked goods.
Flowers’ longstanding production facilities enjoy proximity advantages, making delivery relatively quick and convenient for its independent distributors compared to rival bakeries that sit further out from end customers.
While the bread category has a weak growth profile due to the category’s maturity and shifting consumer preferences for fewer carbs, BBB-rated Flowers seems likely to remain a recession-proof cash cow with a safe dividend that has been paid reliably since 2002.
Recession-Proof Stock #19: Magellan Midstream Partners
Sector: Energy – Oil and Gas Storage and Transportation
Dividend Yield: 8.0% (as of 11/8/22)
2007-09 Recession Return: -30% vs -55% for S&P 500
Uninterrupted Dividend Streak: 20 years
Magellan Midstream Partners (MMP) has paid distributions without interruption since 2001, reflecting the master limited partnership’s conservative financial policies and steady cash flow.
Magellan’s core business consists of refined products pipelines and terminals that help transport gasoline and other fuels from refineries to gas stations, truck stops, and other end users. The firm also owns oil pipelines that move crude to different market hubs for energy producers.
Source: Magellan Midstream Partners
Both businesses generate stable fees during recessions, reflecting built-in volume protection due to the non-discretionary nature of most transportation fuels and contracts with minimum volume provisions backing most of Magellan’s oil pipelines.
High inflation poses little threat to Magellan as well. Approximately 30% of the firm’s refined products markets charge regulated tariff rates that track the producer price index for finished goods.
As this price index rises, the market rates charged across the rest of the business generally face upward pressure, too.
Coupled with Magellan’s modest capital spending needs (the refined products industry is very mature with little growth), the partnership has historically managed to offset higher operating expenses with price increases to protect cash flow.
Magellan’s BBB+ credit rating insulates the firm’s cash flow from rising interest rates as well. An investment-grade rating has given Magellan access to debt capital with attractive fixed rates and long, well-laddered maturities.
For these reasons, Magellan usually plays the role of a low volatility stock. During the 2007-09 Great Recession, MMP shares fell just 30%, or about half as much as the S&P 500.
Increased fuel efficiency and a shift to electric vehicles could weigh on long-term demand for gasoline. But investors who share our belief that this transition will take place over many years or decades may still find Magellan’s overall risk profile and high dividend attractive.
Recession-Proof Stock #18: WEC Energy
Sector: Utilities – Multi-Utilities
Dividend Yield: 3.2% (as of 11/8/22)
2007-09 Recession Return: -18% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 20 years
With roots tracing back to 1896, WEC Energy (WEC) has grown through a handful of major acquisitions to become one of the nation’s biggest utilities, with electric and natural gas activities in Wisconsin, Illinois, Michigan, and Minnesota.
Source: WEC Energy
Regulated utilities are among the most dependable businesses investors can own during a recession. This reflects the lack of competition in their service territories, the reasonable returns on capital investments they are allowed to earn by regulators, and the non-discretionary nature of their services.
WEC’s predictability is especially impressive as it is the only regulated utility to have beaten earnings guidance every year since 2004.
The company’s track record reflects management’s conservatism running the business, as well as Wisconsin’s solid economy and the supportive relationships WEC has maintained with state regulators.
Looking ahead, management expects earnings to grow by 6% to 7% per year as WEC’s rate base and regulated renewables continue expanding. This should fuel a similar pace of dividend growth, giving WEC one of best combinations of dividend income and growth in the sector.
Coupled with a healthy A- credit rating and no need to raise equity capital to fund its spending plans through 2026, WEC Energy appears poised to weather a recession and come out stronger on the other side.
Recession-Proof Stock #17: Enterprise Products Partners
Sector: Energy – Oil and Gas Storage and Transportation
Dividend Yield: 7.6% (as of 11/8/22)
2007-09 Recession Return: -37% vs -55% for S&P 500
Uninterrupted Dividend Streak: 23 years
Enterprise Products Partners (EPD), a master limited partnership, has paid uninterrupted distributions since going public in 1998.
With roots tracing back to 1968, Enterprise has grown to become one of the largest midstream service providers in America with a network of assets connected to nearly every major U.S. shale basin and throughout the Gulf Coast.
Enterprise’s pipelines, storage facilities, and other infrastructure help raw fossil fuels get from a producer’s wellhead to the end consumer in a ready-to-use state, generating fees at almost each step of the way.
Source: Enterprise Products Partners
Despite handling a mix of crude oil, natural gas, petrochemicals, natural gas liquids, the firm’s cash flow has minimal direct exposure to commodity prices. Instead, Enterprise enjoys stability from long-term, fixed-fee contracts with minimum volume commitments and annual rate escalators to offset inflation.
Coupled with a BBB+ credit rating and conservative payout ratio that supports a self-funding business model (i.e. expansion projects funded by cash flow and debt rather than equity), Enterprise represents one of the lower-risk choices in the midstream energy space.
The partnership has survived past recessions with its dividend intact. And oil and gas prices may hold at higher levels during the next downturn given the current inflationary environment.
This could help Enterprise deliver even better performance than it did during the 2007-09 financial crisis, when EPD units lost 37% compared to the S&P 500’s -55% total return.
Recession-Proof Stock #16: Lockheed Martin
Sector: Industrials – Aerospace and Defense
Dividend Yield: 2.4% (as of 11/8/22)
2007-09 Recession Return: -46% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 29 years
Lockheed Martin (LMT) commenced operations in 1912 during the dawn of flight and is now the world’s largest defense contractor and supplier of fighter aircraft.
Most of Lockheed’s business is with the U.S. government and spans combat aircraft such as the F-35 joint strike fighter, missile defense systems, military helicopters, and satellite systems.
Source: Lockheed Martin
Military might has always played a major role in human affairs, making the need to defend territory and wield power a timeless, expensive problem for governments.
Lockheed’s scale and time-tested reputation make the firm an ideal partner for the U.S. government, resulting in a large backlog of work that provides multiyear revenue visibility.
While defense budgets ebb and flow, a high baseline of spending and diversified mix of projects help Lockheed generate a consistent level of profits detached from the vagaries of the economic cycle.
The business enjoys protection from inflation as well, with 40% of revenue tied to cost-plus contracts that pass higher costs through to the end customer.
The other 60% of sales have fixed-price contracts, but Lockheed requires its suppliers to enter fixed-price arrangements over the entire duration of a project, pushing inflation risk lower down in the supply chain.
With relatively low debt levels and an A- credit rating, Lockheed is insulated from rising interest rates, too. Along with a conservative payout ratio below 50%, Lockheed appears primed to continue growing its dividend and remain a recession-proof stock for income.
Recession-Proof Stock #15: Public Storage
Sector: Real Estate – Specialized REITs
Dividend Yield: 2.8% (as of 11/8/22)
2007-09 Recession Return: -38% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 41 years
Public Storage (PSA) went into business in 1972 and is the largest U.S. self-storage REIT with over 2,000 facilities serving more than 1 million customers.
Source: Public Storage
Self-storage has proven to be a sticky business since moving is such a headache.
In fact, the self-storage industry’s free cash flow per share fell by less than 5% during the financial crisis, according to a 2013 report by Bank of America Merrill Lynch.
While consumers spend less during recessions, they still need a place to store their stuff. As long as people continue experiencing major life events such as an unexpected move or divorce, there will be demand for self-storage warehouses.
This results in a stable and predictable industry with a slow pace of change – all good things for dividend growth investors worried about the next economic slowdown.
Public Storage is particularly advantaged since it is nearly larger than its top three competitors combined and locates many of its facilities in close proximity to each other.
This allows the REIT to leverage its costs (property management, maintenance, and advertising) across the company to achieve better profitability during the good times and the bad.
As population density increases, flexible work encourages consumers to free up more space at home, and downsizing activity rises alongside an aging population, demand for storage properties should rise over the long term, providing a nice tailwind for Public Storage.
While the firm’s quarterly dividend has remained frozen since late 2016, the payout remains on solid ground and has an impressive track record; Public Storage has paid uninterrupted quarterly dividends since 1981.
The company also has a conservative balance sheet, earning it an A credit rating, and should remain a cash cow given the lack of capital required to maintain this business.
Coupled with ownership of real property and month-to-month leases with prices that are more flexible to adjust, Public Storage represents a solid inflation hedge in addition to a quality recession-proof stock to consider.
Recession-Proof Stock #14: McDonald’s
Sector: Consumer Discretionary – Restaurants
Dividend Yield: 2.2% (as of 11/8/22)
2007-09 Recession Return: -3% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 46 years
Consumers cut back on discretionary spending to save money during economic downturns, so restaurants are usually not the best dividend stocks for a recession. Higher labor and food costs further add to the industry’s challenges in an inflationary environment.
But McDonald’s (MCD) is different. Almost all of the fast-food chain’s restaurants are franchised, meaning the stores are owned and operated by independent business owners.
Source: McDonald’s
Under a typical franchise arrangement, McDonald’s owns the land and building while the franchisee pays for the equipment, signs, seating, décor, labor, food, and other supplies.
Franchisees generate the bulk of McDonald’s profits by paying the company high-margin rent and royalties based upon a percent of sales.
This model helps shield McDonald’s from a restaurant’s rising operating costs, and the firm’s underlying real estate ownership serves as another inflation hedge.
“We (McDonald’s) are not technically in the food business. We are in the real estate business. The only reason we sell fifteen-cent hamburgers is that they are the greatest producer of revenue, from which our tenants can pay us our rent.”
– Harry Sonneborn, McDonald’s former president and chief executive
That said, McDonald’s has historically supported franchisees by co-investing to improve restaurants. This has helped the firm maintain consistency between locations with fast service, convenient ordering options, hot food, and predictable quality.
Along with an affordable menu, generous advertising budget, and BBB+ credit rating, McDonald’s should remain a durable cash cow with a safe dividend that has been paid without interruption since 1976.
Recession-Proof Stock #13: Consolidated Edison
Sector: Utilities – Multi-Utilities
Dividend Yield: 3.6% (as of 11/8/22)
2007-09 Recession Return: –26% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 47 years
Founded in 1823 as the New York Gas Light company, utility Consolidated Edison (ED) provides energy for the 10 million people who live in and around New York City. Almost all of the firm’s earnings are generated from regulated activities involving the transmission and distribution of electric and gas power.
Source: Consolidated Edison
The company’s focus on regulated utilities, combined with the industry’s slow pace of change and recession-resistant services, has resulted in a predictable earnings stream enabling Con Edison to increase its dividend every year since 1975, the longest streak of any S&P 500 utility company.
Con Edison’s dividend has grown at a low single-digit pace over the past decade, reflecting some of New York City’s challenges.
While Manhattan needs reliable power, the city has experienced several years of population losses as residents seek cheaper options. Regulators have also been less agreeable to raising electricity and gas rates given the city’s high cost of living and already pricey power.
Still, Con Edison has lots of work to maintain New City’s infrastructure, which requires substantial investment being located in such a dense, congested area.
From strengthening the grid to participating in the clean energy transition with efficiency projects and electric vehicle charging stations, BBB+ rated Con Edison should continue to enjoy predictable earnings and pay a secure dividend in all manner of economic environments.
Recession-Proof Stock #12: Realty Income
Sector: Real Estate – Retail REITs
Dividend Yield: 4.7% (as of 11/8/22)
2007-09 Recession Return: -43% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 53 years
Realty Income (O) is among the best monthly dividend stocks with a track record of paying uninterrupted dividends since its founding in 1969.
The REIT owns over 11,000 properties focused on freestanding, single-tenant retail. Realty’s properties are leased to more than 1,000 tenants operating in around 70 different industries, creating a diversified rental income stream.
The firm’s long-term leases provide predictable cash flow during downturns and insulate Realty from inflation. As a triple net lease REIT, Realty’s clients cover taxes, insurance, and other operating expenses. As prices rise, clients pass the incremental cost burden on to their customers or suppliers.
Realty also generates most of its rent from recession-resistant tenants that have a service, non-discretionary, or low price point element to their business. Nearly half of the REIT’s tenants have investment-grade credit ratings, too.
Source: Realty Income
The quality of Realty’s properties and underwriting is reflected in the company’s occupancy rate, which has never dipped below 96%, even during the 2007-09 financial crisis and 2020 pandemic.
Along with an A- credit rating, which provides some fundamental protection against rising interest rates and tighter financial conditions, Realty Income should remain one of the most reliable dividend stocks to ride out a recession.
Recession-Proof Stock #11: PepsiCo
Sector: Consumer Staples – Soft Drinks
Dividend Yield: 2.5% (as of 11/8/22)
2007-09 Recession Return: -35% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 57 years
With roots tracing back to 1898, PepsiCo (PEP) is one of the oldest and largest drink and snack makers in the world.
The firm’s balanced portfolio includes over 20 iconic brands that generate more than $1 billion each in annual sales, including Lay’s and Doritos chips, Gatorade sports drinks, Quaker oatmeal, and Mountain Dew soda.
Source: PepsiCo
PepsiCo’s products are recession-resistant since people need to eat and drink no matter how the economy performs. In fact, the company’s sales dipped just 0.5% during the 2007-09 Great Recession, and revenue surged during the 2020 pandemic as at-home eating boomed.
High inflation does create a challenge given the number of raw materials PepsiCo needs to make its food and beverages. But the firm’s strong brands and dominant shelf space with retailers have helped PepsiCo raise prices to protect its margins and continue growing earnings.
PepsiCo’s profits are insulated from rising interest rates as well since the company maintains low leverage and earns an A+ credit rating.
Overall, PepsiCo is one of the best recession-proof stocks in the market and appears positioned to extend its streak of paying higher dividends every year since 1971 regardless of the economic environment.
Recession-Proof Stock #10: Genuine Parts
Sector: Consumer Discretionary – Distributors
Dividend Yield: 2.0% (as of 11/8/22)
2007-09 Recession Return: -46% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 57 years
Founded in 1928, Genuine Parts (GPC) owns the largest global automotive replacement parts network and has a sizable industrial parts distribution business.
Source: Genuine Parts
On the automotive side, which generates the majority of the company’s sales, Genuine Parts markets its products through a network of distribution centers and retail outlets, including thousands of NAPA and Alliance auto parts stores.
The automotive aftermarket business does well even in challenging times because people still have a need to repair their aging vehicles as they break down over time.
High used car prices and limited availability of new vehicles due to pandemic-related supply chain disruptions further support maintenance demand for existing cars.
Auto and industrial parts are somewhat price inelastic, too. Customers value product reliability and delivery convenience more than getting the absolute lowest price. This is partially because professional clients tend to pass on higher prices to their customers, helping Genuine Parts maintain stable margins.
Overall, Genuine Parts operates in slow-changing industries and maintains leading market positions because of its extensive distribution networks (just-in-time delivery), wide range of products, brand recognition, and long-standing customer relationships.
Combined with a conservative payout ratio target near 50%, a BBB credit rating, and solid cash flow generation even during economic downturns, Genuine Parts should extend its streak of higher annual dividends since 1957 and remain one of the best dividend stocks for a recession.
Recession-Proof Stock #9: Kimberly-Clark
Sector: Consumer Staples – Household Products
Dividend Yield: 3.7% (as of 11/8/22)
2007-09 Recession Return: -34% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 87 years
Kimberly-Clark (KMB) has grown from humble roots as a simple paper mill founded in 1872 to a global leader in tissue and hygiene products, including five billion-dollar brands: Huggies, Kleenex, Cottonelle, Scott, and Kotex.
Source: Kimberly-Clark
Demand for Kimberly-Clark’s products remains fairly stable during recessions because there is not much discretionary use in categories such as diapers and toilet paper. While more consumers trade down when times get tough, Kimberly-Clark plays across all pricing tiers with value and premium offerings.
These qualities helped the firm’s sales slip only 4% during the 2007-09 financial crisis, and management had confidence to continue raising the dividend as Kimberly-Clark has done every year since 1973.
Inflation does impact Kimberly-Clark’s costs with key raw materials such as nonwoven fabrics and pulp facing upward pressure. However, the company has offset a significant amount of inflation with price increases and cost savings actions.
With a strong balance sheet, A credit rating, and portfolio of recession-resistant products, Kimberly-Clark should remain a durable income investment in all manner of environments.
Recession-Proof Stock #8: Duke Energy
Sector: Utilities – Diversified Utilities
Dividend Yield: 4.3% (as of 11/8/22)
2007-09 Recession Return: -34% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 95 years
Duke Energy (DUK) is one of the largest regulated utilities in America with operations spanning seven states across the Southeast and Midwest.
Electric utilities generate most of the firm’s profits, with gas utilities, infrastructure, and renewables driving the remainder. Over 90% of cash flow is from regulated activities.
Source: Duke Energy
Due to the steep cost of infrastructure required to serve a limited pool of customers, many utility companies are essentially government regulated monopolies in the regions where they operate. Duke’s utilities are no exception, acting as sole suppliers in most of their service territories.
However, the monopoly status of regulated utilities has a downside: the price they can charge for their services is controlled by state commissions to ensure rates remain reasonable for consumers.
Fortunately, Duke’s utilities are concentrated in areas that have historically constructive regulation. Weighted by rate base, Duke operates in the top 20% of jurisdictions in the country, according to estimates made by activist investor Elliott Management.
Coupled with Duke’s BBB+ credit rating, the firm should continue growing its earnings and defending its track record of paying safe dividends since 1927.
The other attribute conservative income investors might appreciate is the stock’s low volatility. During the financial crisis, DUK’s shares slumped just 34% while the S&P 500 lost 55%.
Overall, Duke’s essential services, stable cash flow, and strong balance sheet make the stock a good choice for low-risk income investors during recessions and bear markets.
Recession-Proof Stock #7: Coca-Cola
Sector: Consumer Staples – Soft Drinks
Dividend Yield: 3.0% (as of 11/8/22)
2007-09 Recession Return: -31% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 102 years
Coca-Cola (KO) began in 1886 when a pharmacist in Atlanta created a new “delicious and refreshing” drink. Today, the iconic beverage maker serves nearly 2 billion customers daily from its portfolio of over 200 drinks sold worldwide.
Source: Coca-Cola
Beverage companies need to cultivate strong brands to drive high sales volumes of their low-priced products. Repeat business from consumers generates the steady cash flow streams that investors expect from this defensive sector.
Retailers, in turn, need to keep shelves stocked with brands that customers expect to find. For beverage manufacturers with in-demand products, like Coca-Cola, the more robust and diverse their portfolios, the more leverage they have when negotiating pricing, shelf space, and in-store promotions.
Coke’s strong positioning, built on the back of tremendous advertising spending and distribution network investments, has historically helped the company raise prices at a pace similar to inflation, protecting margins.
With about 80% of the firm’s sales volumes coming from outside the U.S., Coca-Cola’s diversified footprint provides insulation from unfavorable economic environments in any single region, too.
Reflecting these defensive qualities, the beverage giant’s sales only fell 5% during the 2007-09 Great Recession, and KO shares outperformed the S&P 500’s -55% return with a loss of 31%.
Backed by an A+ credit rating and annual dividend growth streak dating back to 1963, Coca-Cola is one of the safest consumer staple stocks investors can own if the economy hits a downturn and brings on a prolonged bear market.
Recession-Proof Stock #6: Johnson & Johnson
Sector: Healthcare – Pharmaceuticals
Dividend Yield: 2.6% (as of 11/8/22)
2007-09 Recession Return: -27% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 106 years
Formed in 1886 as a manufacturer of sterile surgical supplies following the Civil War, Johnson & Johnson (JNJ) is now one of the world’s largest pharma companies and makers of medical devices.
Source: Johnson & Johnson
Consumers dealing with arthritis, infectious diseases, mood disorders, cancer, diabetes, and other ailments need to continue receiving treatment during recessions, resulting in stable demand for J&J’s branded medicines.
While drugs operate in boom-and-bust cycles due to the nature of their finite patent protection, J&J’s portfolio is not overly concentrated in any single drug or treatment area. This reduces the firm’s earnings volatility.
Demand for medical devices is more sensitive to recessions since elective surgeries can be deferred, but a healthy baseline of demand for many types of procedures helps stabilize J&J’s performance.
These resilient cash flow sources and management’s conservative use of debt have earned the firm a pristine AAA credit rating and enabled the firm to raise its dividend every year since 1963. Johnson & Johnson should stay relevant for decades to come regardless of recessions and bear markets.
Recession-Proof Stock #5: Chevron
Sector: Energy – Integrated Oil and Gas
Dividend Yield: 3.1% (as of 11/8/22)
2007-09 Recession Return: -34% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 110 years
A recession triggered by inflation could result in energy producers fairing relatively well as supply constraints keep oil and gas prices high. Chevron (CVX), one of the largest oil companies in the world, could perform well in an environment with sticky inflation.
Source: Chevron
But even if oil prices come down as a contracting economy better balances supply and demand, Chevron has an excellent track record of paying stable or higher dividends each year since 1912.
This resilient performance partly reflects Chevron’s scale, capital efficiency, and vast resource base. Management believes the firm can cover its capital spending program and dividend with an oil price as low as $50 per barrel, providing a healthy margin of safety.
Oil prices have fallen below this threshold and might in the next downturn. But Chevron maintains ample balance sheet capacity so it can borrow debt to plug its cash flow deficit and defend its dividend until the pricing environment recovers.
With Chevron’s dividend costing about $11 billion annually and the firm able to reduce short-cycle capital during periods of extreme stress, we think Chevron’s dividend could survive multiple years of oil prices as low as $30 per barrel.
Overall, Chevron should remain a cash cow paying a generous dividend even if the price of oil falls. For investors who believe fossil fuels will remain a core component of the world’s energy mix, Chevron represents one of the best recession-proof stocks in the industry.
Recession-Proof Stock #4: General Mills
Sector: Consumer Staples – Packaged Foods and Meats
Dividend Yield: 2.7% (as of 11/8/22)
2007-09 Recession Return: -12% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 124 years
General Mills (GIS) has been in business since 1866 but did not focus entirely on consumer foods until 1995. Today, General Mills sells a wide variety of branded packaged meals, cereals, snacks, baking products, pet food, and more. No category tops 25% of sales.
Source: General Mills
The firm’s core brands have been on the shelves for many decades, supported by hefty spending on advertising and product innovation. These investments have helped General Mills’ foods reach over 95% of U.S. households and dominate their respective categories.
Consumers expect to find these brands when they shop, giving General Mills pricing power with retailers to combat inflation.
Demand generally remains stable during recessions as well because people stop eating away from home as much to save money. In fact, the firm’s sales were flat during the 2007-09 financial crisis.
Ultimately, General Mills’ large marketing budget, shelf space, distribution relationships, product diversity, entrenched brands, and BBB credit rating should help the business stay relevant and continue its streak of paying uninterrupted dividends since 1898.
Recession-Proof Stock #3: Colgate
Sector: Consumer Staples – Household Products
Dividend Yield: 2.5% (as of 11/8/22)
2007-09 Recession Return: -22% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 127 years
Founded in 1806 as a starch, soap, and candle business, Colgate (CL) is now one of the world’s largest consumer products conglomerates. The company’s brands span everything from toothpaste and mouthwash to shower gels, household cleaners, and specialty pet food.
Source: Colgate
During recessions, people still brush their teeth, take showers, wash their hands, and clean their homes. This limited Colgate’s revenue decline during the 2007-09 financial crisis to less than 3%, helping the stock fall by less than half of the S&P 500’s decline.
That said, more consumers still look to save money during economic downturns by trading down to cheaper products. Colgate mitigates this risk by having products available at all price points and in different package sizes to meet a wide variety of consumer needs.
Compared to other consumer product categories, oral care also faces less competition from lower-priced private label offerings. This reflects the more scientific nature of products such as toothpaste, as well as the importance of endorsements from dentists for Colgate’s brands.
With stable cash flow, significant exposure to emerging markets for long-term growth, and a strong AA- credit rating, Colgate is one of the best dividend stocks during recessions and appears poised to extend its streak of paying uninterrupted dividends for more than 125 years.
Recession-Proof Stock #2: Procter & Gamble
Sector: Consumer Staples – Household Products
Dividend Yield: 2.7% (as of 11/8/22)
2007-09 Recession Return: -36% vs -55% for S&P 500
Uninterrupted Dividend Streak: 132 years
Since its formation in 1837, Procter & Gamble (PG) has grown into one of the world’s largest manufacturers of laundry detergents, baby wipes, diapers, paper towels, cleaning products, shampoos, deodorants, toothpastes, and other consumer goods.
Source: Procter & Gamble
Following decades of high spending on advertising and innovation, most of the company’s 20-plus billion-dollar brands boast No. 1 or No. 2 positions in their categories. Consumers expect to find these brands when they shop.
This strengthens P&G’s bargaining power with retailers, helping the consumer products giant increase prices to offset rising costs in an inflationary environment. Higher interest rates pose little threat to the firm’s earnings as well since P&G maintains low leverage and has a strong AA- credit rating.
While some consumers trade down to cheaper offerings during recessions, overall demand for most of the staples P&G sells remains steady since these products are used every day. The firm has also created different value tiers and pack sizes to meet shifting consumer priorities.
With management continuing to invest around $10 billion annually on R&D and advertising to maintain the company’s entrenched market position, P&G should remain a recession-proof stock with dividends investors can rely on.
Recession-Proof Stock #1: Exxon Mobil
Sector: Energy – Integrated Oil and Gas
Dividend Yield: 3.2% (as of 11/8/22)
2007-09 Recession Return: -28% vs. -55% for S&P 500
Uninterrupted Dividend Streak: 140 years
Exxon Mobil (XOM) and its predecessors have paid uninterrupted dividends since 1882, marking the longest streak of any recession-proof stock on our list.
The resilience of the oil major’s dividend across dozens of recessions and energy price crashes reflects management’s conservative approach to running the business, beginning with Exxon’s integrated business model.
The energy behemoth controls all aspects of the fossil fuel business, from exploration and production to transportation, refining, and retail gasoline sales.
Source: Exxon Mobil
Falling oil prices reduce earnings in Exxon’s upstream production segment, but the firm’s refining and petrochemical businesses benefit from lower input costs. This diversification helps keep Exxon profitable in all manner of commodity price environments.
Exxon’s relatively low leverage and AA- credit rating provide further insulation. When oil falls below around $40 per barrel, the level Exxon needs to cover its dividend and capital spending program, the firm can borrow debt to plug its cash flow deficit until the pricing environment improves.
We estimate that Exxon’s balance sheet capacity would allow the the company to defend its dividend for at least a couple of years if oil prices averaged as low as $30 per barrel.
While oil demand falls during recessions, prices may not fall as far in the next downturn if persistent inflation caused by supply constraints keeps energy prices high.
Even if the price of oil crashes like it did in 2008, investors can take some comfort in knowing that XOM shares only lost 28% during the financial crisis compared to the S&P 500’s -55% slump.
For income investors who share our belief that fossil fuels will remain a core component of the world’s energy mix, Exxon seems like a good bet for reliable dividends whenever the next recession arrives.
Closing Thoughts on Recession-Proof Dividend Stocks
The best dividend stocks for recessions possess defensive qualities that appeal to conservative investors seeking safe income and capital preservation.
No one can predict with any consistency when the next downturn will hit or which industries will face the most pain. Maintaining a diversified portfolio can help, as can holding some of the of the companies we highlighted.
By the way, many of the people interested in recession-resistant stocks are retirees looking to generate safe income from dividend-paying stocks.
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Source: SimplySafeDividends.com