Top Recession Resistant Stocks
Preserving capital and generating safe income are core goals in retirement. So not surprisingly, conservative investors often worry about when the next recession will occur and how it will affect their portfolios. Safe dividend-paying stocks can be an appealing choice for retirees who desire a predictable income stream that can hold its ground regardless of economic conditions and short-term stock price fluctuations.
In fact, over there are dozens of recession resistant stocks in our investment research database with fundamentally strong and competition resistant businesses with fantastic upside potential. These are stocks that are undervalued, with strong growth prospects, and have great potential to deliver strong returns for investors. You can check out our full list of investment recommendations here.
In this brief, we analyzed 14 of the best recession proof dividend growth stocks. These companies have dividend yields typically 2% or higher, have stable business models, solid balance sheets, and proven commitments to maintaining and growing their dividends in all manner of economic, industry, and interest rate conditions. Each stock also meaningfully outperformed the S&P 500 during the financial crisis.
In fact, over there are dozens of recession resistant stocks in our investment research database with fundamentally strong and competition resistant businesses with fantastic upside potential. These are stocks that are undervalued, with strong growth prospects, and have great potential to deliver strong returns for investors. You can check out our full list of investment recommendations here.
In this brief, we analyzed 14 of the best recession proof dividend growth stocks. These companies have dividend yields typically 2% or higher, have stable business models, solid balance sheets, and proven commitments to maintaining and growing their dividends in all manner of economic, industry, and interest rate conditions. Each stock also meaningfully outperformed the S&P 500 during the financial crisis.
1. United Natural Foods
Sector: Consumer Staples Industry: Consumer Food Goods
Recession Return: S&P 500 lost 55% from 2007 - 2009; PG shares lost 26%
Dividend Growth Streak: 5 years
United Natural Foods is the one of the largest wholesale food distributors in the United States and Canada, delivering a wide assortment of food products ranging from wholesale natural, organic, grocery, produce, personal care, and supplements. The company generates over $20 billion a year in annual revenue and is tied to the consumer defensive food and groceries segment.
Recession Return: S&P 500 lost 55% from 2007 - 2009; PG shares lost 26%
Dividend Growth Streak: 5 years
United Natural Foods is the one of the largest wholesale food distributors in the United States and Canada, delivering a wide assortment of food products ranging from wholesale natural, organic, grocery, produce, personal care, and supplements. The company generates over $20 billion a year in annual revenue and is tied to the consumer defensive food and groceries segment.
There doesn't really exist many businesses that are more stable and consumer defensive than the grocery business, we will always need to eat it regardless of what's happening in the world and to the economy. UNFI promises shareholders strong returns, the stock is very undervalued.
Growth in the food business is stable but UNFI will benefit from more revenues from Amazon's larger push into food offerings and COVID related tailwinds with widespread restaurant closures more people will eat at home
Read More: United Natural Foods Stock Analysis
Growth in the food business is stable but UNFI will benefit from more revenues from Amazon's larger push into food offerings and COVID related tailwinds with widespread restaurant closures more people will eat at home
Read More: United Natural Foods Stock Analysis
2. Lockheed Martin
Sector: Misery Defense Contractors Industry: Defense
Recession Return: S&P 500 lost 55% from 2007 - 2009; LMT shares lost 33%
Dividend Growth Streak: 17 years
LMT is the largest military defense contractor in the world with 60+ billion a year in annual revenues; the company develops aerospace, military defense, and naval weaponry systems primarily for the U.S government. LMT is as steady as a stock as they come boasting decades of increased revenue, market crushing capital appreciation and a solid 3% dividend yield. In peaceful and restful geopolitical events LMT is posied to do well as global defense military budget allocations year over year.
Recession Return: S&P 500 lost 55% from 2007 - 2009; LMT shares lost 33%
Dividend Growth Streak: 17 years
LMT is the largest military defense contractor in the world with 60+ billion a year in annual revenues; the company develops aerospace, military defense, and naval weaponry systems primarily for the U.S government. LMT is as steady as a stock as they come boasting decades of increased revenue, market crushing capital appreciation and a solid 3% dividend yield. In peaceful and restful geopolitical events LMT is posied to do well as global defense military budget allocations year over year.
Read more: Lockheed Martin Stock Analysis
2. 3M
Sector: Industrials Industry: Consumer & Industrial Durables
Recession Return: S&P 500 lost 55% from 2007 - 2009; MMM shares lost 36%
Dividend Growth Streak: 61+ years
3M is an industrial conglomerate manufacturing over 55,000 different products across a number of different industries ranging from worker safety, US health care, and consumer goods. 3M boasts annual revenues of over $33 billion, with popular products ranging from Scotch Tape, 3M respirators and N-95 Masks, Braces, Nextcare medical products, Scotch Brite Cleaning products, and Ace Joint Braces. With highly defensive operating segments in medical products and personal protective equipment, 3M revenues have increased steadily overtime regardless of economic calamities, and the stock has delivered substantial shareholder returns. 3M has been offering dividends for over 100 years and increased the dividend yield for 61 consecutive years. 3M's current dividend yield of 3.33% is very appealing, and the stock helps to bolster your portfolio with a high quality asset that will do well over time.
Read More: 3M Stock Analysis
Recession Return: S&P 500 lost 55% from 2007 - 2009; MMM shares lost 36%
Dividend Growth Streak: 61+ years
3M is an industrial conglomerate manufacturing over 55,000 different products across a number of different industries ranging from worker safety, US health care, and consumer goods. 3M boasts annual revenues of over $33 billion, with popular products ranging from Scotch Tape, 3M respirators and N-95 Masks, Braces, Nextcare medical products, Scotch Brite Cleaning products, and Ace Joint Braces. With highly defensive operating segments in medical products and personal protective equipment, 3M revenues have increased steadily overtime regardless of economic calamities, and the stock has delivered substantial shareholder returns. 3M has been offering dividends for over 100 years and increased the dividend yield for 61 consecutive years. 3M's current dividend yield of 3.33% is very appealing, and the stock helps to bolster your portfolio with a high quality asset that will do well over time.
Read More: 3M Stock Analysis
3. Tyson Foods
Sector: Consumer Staples Industry: Grocery & Food Products
Recession Return: S&P 500 lost 55% from 2007 - 2009; TSN shares lost 37%
Dividend Growth Streak: 30+ years
Tyson Foods is one of the largest global manufacturers of protein based meat products in the world with operations in over 140 countries and sales of $42 billion a year. Tyson is a fantastic play on the consumer defensive investment sector helping to insulate your portfolio from greater market volatility. TSN is an undervalued blue chip stock that will do well in disparate economic environment's; regardless of what happens to the economy consumers still need to eat and an ever growing population as well as solid growth in the Beef and Pork markets will drive enduring mid single digit revenue growth moving foreword.
Recession Return: S&P 500 lost 55% from 2007 - 2009; TSN shares lost 37%
Dividend Growth Streak: 30+ years
Tyson Foods is one of the largest global manufacturers of protein based meat products in the world with operations in over 140 countries and sales of $42 billion a year. Tyson is a fantastic play on the consumer defensive investment sector helping to insulate your portfolio from greater market volatility. TSN is an undervalued blue chip stock that will do well in disparate economic environment's; regardless of what happens to the economy consumers still need to eat and an ever growing population as well as solid growth in the Beef and Pork markets will drive enduring mid single digit revenue growth moving foreword.
Read More: Tyson Foods Stock Analysis
4. Sherwin-Williams
Sector: Consumer Durables Industry: Home Improvement
Recession Return: S&P 500 lost 55% from 2007 - 2009; SHW shares decreased 35%
Dividend Growth Streak: 41 years
Sherwin-Williams is one of the largest paint producers in the world with annual revenues exceeding $18 billion a year. The company boasts a venerable product portfolio including major paint names ranging from Valspar, Sherwin-Williams, Dutch Boy, Krylon, and Miniwax. The company has 4,758 company-owned stores that carry the company's products under the "Sherwin-Williams" brand. These stores service the needs of home building contractors and "do-it-yourself" remodelers. Sherwin-Williams has increased its dividend yield for over 40 years, and even amidst current market calamities Sherwin-Williams has excelled. Especially in todays pandemic embroiled economic environment consumers are increasingly catching up on home renovation projects the most common being repainting the interior and exterior of their homes. Sherwin-Williams has delivered year over year quarterly revenue increases and revenues have steadily increased for over 20 years. During a recession, consumers are more likely to make repairs and perform home improvement work themselves. With ongoing COVID-19 related business closures, DIY activities are noticeably more prevalent and extend to even more industries.
Read More: SHW Pharmacy Stock Analysis
Recession Return: S&P 500 lost 55% from 2007 - 2009; SHW shares decreased 35%
Dividend Growth Streak: 41 years
Sherwin-Williams is one of the largest paint producers in the world with annual revenues exceeding $18 billion a year. The company boasts a venerable product portfolio including major paint names ranging from Valspar, Sherwin-Williams, Dutch Boy, Krylon, and Miniwax. The company has 4,758 company-owned stores that carry the company's products under the "Sherwin-Williams" brand. These stores service the needs of home building contractors and "do-it-yourself" remodelers. Sherwin-Williams has increased its dividend yield for over 40 years, and even amidst current market calamities Sherwin-Williams has excelled. Especially in todays pandemic embroiled economic environment consumers are increasingly catching up on home renovation projects the most common being repainting the interior and exterior of their homes. Sherwin-Williams has delivered year over year quarterly revenue increases and revenues have steadily increased for over 20 years. During a recession, consumers are more likely to make repairs and perform home improvement work themselves. With ongoing COVID-19 related business closures, DIY activities are noticeably more prevalent and extend to even more industries.
Read More: SHW Pharmacy Stock Analysis
5. CVS Pharmacy
Sector: Consumer Staples Industry: Healthcare
Recession Return: S&P 500 lost 55% from 2007 - 2009; CVS shares lost 25%
Dividend Growth Streak: 0 years
CVS Pharmacy is the largest retail pharmacy in the U.S. filling more than one billion prescriptions each year. The company's retail stores feature thousands of items including organics and naturals, innovations in beauty and health, and healthier-for-you food choices. With more than 9,900 pharmacies and 1,100 Minute Health Care facilities CVS is a preeminent player in the healthcare and pharmaceutical distribution space
Recession Return: S&P 500 lost 55% from 2007 - 2009; CVS shares lost 25%
Dividend Growth Streak: 0 years
CVS Pharmacy is the largest retail pharmacy in the U.S. filling more than one billion prescriptions each year. The company's retail stores feature thousands of items including organics and naturals, innovations in beauty and health, and healthier-for-you food choices. With more than 9,900 pharmacies and 1,100 Minute Health Care facilities CVS is a preeminent player in the healthcare and pharmaceutical distribution space
Not only pharmaceutical companies have a rather recession-proof business model. Healthcare service companies tend to be untroubled by huge earnings declines during recessions. CVS Health is an American healthcare company generating its revenue from different segments – pharmaceutical retail stores, pharmacy benefit management and healthcare benefits. In total, CVS is offering a wide range of healthcare products and services. CVS is generating revenue from selling pharmaceutical products through its 10,000 retail stores and after the acquisition of CVS Caremark, the company is also one of the big pharmacy benefit managers in the United States. In November 2018, CVS acquired Aetna, a healthcare insurance company and diversified its healthcare business even more. Aside from some exceptions (the front store products, for example, which make up about 6% of the company’s total revenue), most of CVS’ products and services are essential. Even during an economic downturn, customers need healthcare services, be checked out by a doctor or fill the prescriptions and buy medications from pharmacies.
Read More: CVS Pharmacy Stock Analysis
Read More: CVS Pharmacy Stock Analysis
6. Procter & Gamble
Sector: Consumer Staples Industry: Household Products
Recession Return: S&P 500 lost 55% from 2007 - 2009; PG shares lost 36%
Dividend Growth Streak: 61 years
In business since 1837, Procter & Gamble is one of the world's largest consumer staples companies, selling 65 products in over 180 countries. Its strong portfolio of brands includes 21 products which generate over $1 billion in annual sales.
Recession Return: S&P 500 lost 55% from 2007 - 2009; PG shares lost 36%
Dividend Growth Streak: 61 years
In business since 1837, Procter & Gamble is one of the world's largest consumer staples companies, selling 65 products in over 180 countries. Its strong portfolio of brands includes 21 products which generate over $1 billion in annual sales.
These strong brands give it industry-leading market share in products that consumers buy no matter what the economy is doing. As long as P&G continues to invest in R&D to stay on top of evolving consumer preferences and invests in the right advertising and distribution channels, its business should remain a force for many years to come.
In recent years Procter & Gamble has undergone a major restructuring, selling over 100 of its smallest and least profitable brands (about 15% of total revenue) to refocus its investments on its strongest and most profitable ones. As a result, the business was able to reduce costs by $7 billion.
Going forward, management expects to cut an additional $10 billion over the next five years by improving the firm's factory automation, streamlining its supply chain, and refocusing its advertising budget. If successful, these initiatives should boost P&G's already impressive free cash flow margin, which at 15% is among the highest in the industry. That in turn should further increase its free cash flow per share, which actually rose during the Great Recession.
As a result, P&G should easily be able to continue one of the most impressive payout growth track records on Wall Street. One that includes increasing the dividend every year since 1957, which covers numerous troubled economic periods. And all while delivering well below average stock price volatility.
For example, Procter & Gamble's shares lost 36% during the financial crisis, much better than the broader market's 55% slump. This consumer staples blue-chip stock is a solid choice for recession-proof portfolios.
Read More: Procter & Gamble Dividend Stock Analysis
Going forward, management expects to cut an additional $10 billion over the next five years by improving the firm's factory automation, streamlining its supply chain, and refocusing its advertising budget. If successful, these initiatives should boost P&G's already impressive free cash flow margin, which at 15% is among the highest in the industry. That in turn should further increase its free cash flow per share, which actually rose during the Great Recession.
As a result, P&G should easily be able to continue one of the most impressive payout growth track records on Wall Street. One that includes increasing the dividend every year since 1957, which covers numerous troubled economic periods. And all while delivering well below average stock price volatility.
For example, Procter & Gamble's shares lost 36% during the financial crisis, much better than the broader market's 55% slump. This consumer staples blue-chip stock is a solid choice for recession-proof portfolios.
Read More: Procter & Gamble Dividend Stock Analysis
7. Johnson & Johnson
Sector: Healthcare Industry: Pharmaceuticals
Recession Return: S&P 500 lost 55% from 2007 - 2009; JNJ shares lost 27%
Dividend Growth Streak: 56 years
Johnson & Johnson is the largest global medical conglomerate with over 250 subsidiaries operating across more than 60 countries. The firm's three business segments provide J&J with a very diversified mix of revenue, earnings and cash flow. However, the Pharmaceuticals division is the largest contributor, accounting for over half of total pretax profits.
Recession Return: S&P 500 lost 55% from 2007 - 2009; JNJ shares lost 27%
Dividend Growth Streak: 56 years
Johnson & Johnson is the largest global medical conglomerate with over 250 subsidiaries operating across more than 60 countries. The firm's three business segments provide J&J with a very diversified mix of revenue, earnings and cash flow. However, the Pharmaceuticals division is the largest contributor, accounting for over half of total pretax profits.
Johnson & Johnson has managed to raise its dividend each year for more than half a century, demonstrating its ability to endure many different economic environments. A key to the company's success is management's focus on only competing in markets that J&J can dominate.
In fact, about 75% of the firm's revenue is from No. 1 or No. 2 global market share positions. Over 20% of sales are also from new products launched within the past five years, highlighting the company's ability to continuously innovate and adapt.
Each of J&J's three operating segments is driven by different factors as well, with the consumer business providing the most predictable cash flow to fund growth in drug investments. This diversification further bolsters the company's resilience to economic cycles and helps fund innovation and acquisitions.
During recessions, consumers still need to have their medical issues treated. As a result, Johnson & Johnson's sales only declined by 6.2% during the financial crisis, management continued raising the dividend, and the company's stock lost half as much as the broader market.
With one of the strongest credit ratings of any company in America, a cash hoard on its balance sheet, and a payout ratio not far from its pre-2008 level, J&J remains a dependable recession proof stock.
Read More: Johnson & Johnson Dividend Stock Analysis
In fact, about 75% of the firm's revenue is from No. 1 or No. 2 global market share positions. Over 20% of sales are also from new products launched within the past five years, highlighting the company's ability to continuously innovate and adapt.
Each of J&J's three operating segments is driven by different factors as well, with the consumer business providing the most predictable cash flow to fund growth in drug investments. This diversification further bolsters the company's resilience to economic cycles and helps fund innovation and acquisitions.
During recessions, consumers still need to have their medical issues treated. As a result, Johnson & Johnson's sales only declined by 6.2% during the financial crisis, management continued raising the dividend, and the company's stock lost half as much as the broader market.
With one of the strongest credit ratings of any company in America, a cash hoard on its balance sheet, and a payout ratio not far from its pre-2008 level, J&J remains a dependable recession proof stock.
Read More: Johnson & Johnson Dividend Stock Analysis
8. Coca Cola
Sector: Consumer Staples Industry: Soft Drinks
Recession Return: S&P 500 lost 55% from 2007 - 2009; KO shares lost 31%
Dividend Growth Streak: 55 years
Coca-Cola is the world's largest beverage seller, marketing over 3,900 products under 500 brands in more than 200 countries and territories via 24 million retail markets. The company owns 21 brands that generate over $1 billion in sales including: Coke, Powerade, Dasani water, and Simply and Minute Maid juices.
Recession Return: S&P 500 lost 55% from 2007 - 2009; KO shares lost 31%
Dividend Growth Streak: 55 years
Coca-Cola is the world's largest beverage seller, marketing over 3,900 products under 500 brands in more than 200 countries and territories via 24 million retail markets. The company owns 21 brands that generate over $1 billion in sales including: Coke, Powerade, Dasani water, and Simply and Minute Maid juices.
Coke's wide moat is courtesy of the world's largest distribution network which has taken over 130 years to build up at a cost of tens of billions of dollars in marketing spending. Smaller rivals simply can't replicate the company's reach or brand awareness. As a result, Coke enjoys premium shelf space in almost every retail outlet in the world.
Coca-Cola's plans for the future include continuing to diversify into healthier options where it has less share today, such as teas, juices, and water. These markets continue to grow strongly in both developed and emerging economies.
Recently this focus on healthier beverages has helped drive mid-single-digit organic sales growth, which is among the best in the industry. Meanwhile, the beverage maker plans to refranchise its capital-intensive bottling operations (over 900 plants worldwide) which will drastically reduce its annual costs.
Once its restructuring is complete, Coke expects its operating margin and free cash flow margin to rise to 34% and 27%, respectively. As the company's future profitability climbs to ever higher levels, Coke's stream of free cash flow should become even stronger to continue the firm's impressive dividend track record.
That record includes annual dividend increases for 55 consecutive years (since 1963). Management targets a reasonable 75% payout ratio over time and expects to continue to grow the dividend as a function of free cash flow.
While the firm does need to invest somewhat aggressively in beverage categories of the future, Coca-Cola should have flexibility to keep its dividend moving higher along the way. From the company's excellent credit rating to its recession-resistant portfolio (sales declined just 4.8% during the financial crisis), support for the payout is solid.
Meanwhile, investors enjoying Coke's dividend can also expect below average volatility. During periods of maximum market fear, Coke shares tend to do even better. For example, during the financial crisis shares lost just 31%, outperforming the S&P 500's slump by about 24%. The bottom line is that Coca-Cola remains one of the safest consumer staple stocks you can own if the economy hits a downturn and brings on a bear market.
Read More: Coca-Cola Dividend Stock Analysis
Coca-Cola's plans for the future include continuing to diversify into healthier options where it has less share today, such as teas, juices, and water. These markets continue to grow strongly in both developed and emerging economies.
Recently this focus on healthier beverages has helped drive mid-single-digit organic sales growth, which is among the best in the industry. Meanwhile, the beverage maker plans to refranchise its capital-intensive bottling operations (over 900 plants worldwide) which will drastically reduce its annual costs.
Once its restructuring is complete, Coke expects its operating margin and free cash flow margin to rise to 34% and 27%, respectively. As the company's future profitability climbs to ever higher levels, Coke's stream of free cash flow should become even stronger to continue the firm's impressive dividend track record.
That record includes annual dividend increases for 55 consecutive years (since 1963). Management targets a reasonable 75% payout ratio over time and expects to continue to grow the dividend as a function of free cash flow.
While the firm does need to invest somewhat aggressively in beverage categories of the future, Coca-Cola should have flexibility to keep its dividend moving higher along the way. From the company's excellent credit rating to its recession-resistant portfolio (sales declined just 4.8% during the financial crisis), support for the payout is solid.
Meanwhile, investors enjoying Coke's dividend can also expect below average volatility. During periods of maximum market fear, Coke shares tend to do even better. For example, during the financial crisis shares lost just 31%, outperforming the S&P 500's slump by about 24%. The bottom line is that Coca-Cola remains one of the safest consumer staple stocks you can own if the economy hits a downturn and brings on a bear market.
Read More: Coca-Cola Dividend Stock Analysis
9. Altria
Sector: Consumer Staples Industry: Tobacco
Recession Return: S&P 500 lost 55% from 2007 - 2009; MO shares lost 20%
Dividend Growth Streak: 49 years
Despite the long-term secular decline in U.S. smoking rates, Altria has managed to become one of the best performing stocks of the last few decades, thanks to its advantaged business model.
America's largest tobacco company commands dominant market share as a result of its portfolio of leading cigarette brands including: Marlboro, Parliament, Virginia slims, and Benson & Hedges brands.
Marlboro alone commands about 40% of the U.S. cigarette market. Altria is also dominant in chewing tobacco (55% market share), cigars (26% market share) and has a fast-growing smokeless business (vaping) and wine division as well.
Fundamentally what makes Altria a potentially great recession proof stock is that its customers are extremely brand loyal and continue to buy its products no matter the state of the economy (sales grew in 2008 and 2009).
This gives the business very strong pricing power (historically the company has raised its cigarette prices 4% to 5% annually) which is how Altria is able to slowly grow revenue despite steady volume declines in U.S. cigarettes.
And given its substantial economies of scale, Altria is able to generate enormous margins on its products. In fact, the company typically converts about 30% of revenue into free cash flow to pay its generous dividend.
Combined with management's strict policy of paying out 80% of adjusted EPS each year in dividends and the firm's excellent A- credit rating, Altria's payout is likely to remain very safe.
Going forward, Altria's plan to keep growing the dividend (which has been raised 53 times in 49 years) is predicated mainly on two things. First, it has a multi-year $2 billion cost saving plan in place which it believes will improve its operating margin from 40% to 45%.
Second, the company plans to continue leveraging its industry-leading brand power to raise prices and offset falling cigarette volumes. Over time industry volumes are expected to fall about 3.5% per year.
However, thanks to higher prices, lower costs, and a steady stream of buybacks, Altria has potential to continue generating mid- to upper single-digit long-term EPS growth (in line with its historical norms). That should translate into healthy dividend growth.
Altria will also use some of its growing cash flow to continue expanding its position in the cigarette alternatives market, which includes smokeless, vaping, and heated tobacco products.
Recession Return: S&P 500 lost 55% from 2007 - 2009; MO shares lost 20%
Dividend Growth Streak: 49 years
Despite the long-term secular decline in U.S. smoking rates, Altria has managed to become one of the best performing stocks of the last few decades, thanks to its advantaged business model.
America's largest tobacco company commands dominant market share as a result of its portfolio of leading cigarette brands including: Marlboro, Parliament, Virginia slims, and Benson & Hedges brands.
Marlboro alone commands about 40% of the U.S. cigarette market. Altria is also dominant in chewing tobacco (55% market share), cigars (26% market share) and has a fast-growing smokeless business (vaping) and wine division as well.
Fundamentally what makes Altria a potentially great recession proof stock is that its customers are extremely brand loyal and continue to buy its products no matter the state of the economy (sales grew in 2008 and 2009).
This gives the business very strong pricing power (historically the company has raised its cigarette prices 4% to 5% annually) which is how Altria is able to slowly grow revenue despite steady volume declines in U.S. cigarettes.
And given its substantial economies of scale, Altria is able to generate enormous margins on its products. In fact, the company typically converts about 30% of revenue into free cash flow to pay its generous dividend.
Combined with management's strict policy of paying out 80% of adjusted EPS each year in dividends and the firm's excellent A- credit rating, Altria's payout is likely to remain very safe.
Going forward, Altria's plan to keep growing the dividend (which has been raised 53 times in 49 years) is predicated mainly on two things. First, it has a multi-year $2 billion cost saving plan in place which it believes will improve its operating margin from 40% to 45%.
Second, the company plans to continue leveraging its industry-leading brand power to raise prices and offset falling cigarette volumes. Over time industry volumes are expected to fall about 3.5% per year.
However, thanks to higher prices, lower costs, and a steady stream of buybacks, Altria has potential to continue generating mid- to upper single-digit long-term EPS growth (in line with its historical norms). That should translate into healthy dividend growth.
Altria will also use some of its growing cash flow to continue expanding its position in the cigarette alternatives market, which includes smokeless, vaping, and heated tobacco products.
Despite gradually falling cigarette volumes and the industry's ongoing evolution to favor reduced-risk products, Altria seems likely to remain a strong recession-proof investment. During the financial crisis the company's stock only declined 20% while the S&P 500 plunged 55%. This cash cow should remain a durable and financially healthy business for the foreseeable future.
Read More: Altria Dividend Stock Analysis
Read More: Altria Dividend Stock Analysis
10. Kimberly Clark
Sector: Consumer Staples Industry: Household Products
Recession Return: S&P 500 lost 55% from 2007 - 2009; KMB shares lost 34%
Dividend Growth Streak: 45 years
Like Procter & Gamble, Kimberly-Clark is a time-tested (founded in 1872) consumer staples behemoth, selling name brand products as Cottonelle toilet paper, Scott paper towels, and Huggies diapers in over 175 countries around the world (emerging markets account for around 30% of sales).
Recession Return: S&P 500 lost 55% from 2007 - 2009; KMB shares lost 34%
Dividend Growth Streak: 45 years
Like Procter & Gamble, Kimberly-Clark is a time-tested (founded in 1872) consumer staples behemoth, selling name brand products as Cottonelle toilet paper, Scott paper towels, and Huggies diapers in over 175 countries around the world (emerging markets account for around 30% of sales).
Demand for these products is recession resistant which is why Kimberly-Clark's earnings and free cash flow per share actually increased during the Great Recession, and its sales only dipped 4.3%.
Due to its strong portfolio of brands, Kimberly-Clark commands No. 1 or No. 2 market share in 80 countries and enjoys a wide moat thanks to retailers giving its fast-selling products preferred shelf space. Combined with the hundreds of millions of dollars the company spends on advertising and R&D each year, this makes it challenging for rivals to steal its sales.
The mature nature of the tissue and hygiene markets adds to the difficulties new entrants face. Product use cases in these markets don't change much over time. For example, diapers will continue doing the same job with only incremental technology improvements, such as better sealing.
The industry's slow pace of change reduces the number of opportunities other players have to jump on trends Kimberly-Clark might not have recognized. Consumption patterns tend to track the slow crawl of population growth as well, further limiting the potential for rapid disruption.
Another competitive advantage Kimberly has is its FORCE (Focused on Reducing Costs Everywhere) cost savings plan which has reduced operating costs by $3.3 billion over the past 13 years. For a company with under $20 billion in annual revenue, this is a significant sum and helps Kimberly-Clark generating excellent free cash flow each year.
Going forward, Kimberly-Clark thinks that ongoing cost cutting, as well as expansion overseas, should allow it to drive mid- to high single-digit (4% to 9%) growth in earnings per share and its dividend. The firm has paid dividends for more than 80 years, including annual increases every year since 1973. That streak should continue regardless of the economic environment.
Kimberly-Clark will never be a fast-growing company, especially as it continues combatting private label products and the rise of online product distribution. However, it remains one of the best recession proof stocks that investors can hold with little fear of a drop in dividend income or a permanent loss of capital.
Read More: Kimberly-Clark Dividend Stock Analysis
Due to its strong portfolio of brands, Kimberly-Clark commands No. 1 or No. 2 market share in 80 countries and enjoys a wide moat thanks to retailers giving its fast-selling products preferred shelf space. Combined with the hundreds of millions of dollars the company spends on advertising and R&D each year, this makes it challenging for rivals to steal its sales.
The mature nature of the tissue and hygiene markets adds to the difficulties new entrants face. Product use cases in these markets don't change much over time. For example, diapers will continue doing the same job with only incremental technology improvements, such as better sealing.
The industry's slow pace of change reduces the number of opportunities other players have to jump on trends Kimberly-Clark might not have recognized. Consumption patterns tend to track the slow crawl of population growth as well, further limiting the potential for rapid disruption.
Another competitive advantage Kimberly has is its FORCE (Focused on Reducing Costs Everywhere) cost savings plan which has reduced operating costs by $3.3 billion over the past 13 years. For a company with under $20 billion in annual revenue, this is a significant sum and helps Kimberly-Clark generating excellent free cash flow each year.
Going forward, Kimberly-Clark thinks that ongoing cost cutting, as well as expansion overseas, should allow it to drive mid- to high single-digit (4% to 9%) growth in earnings per share and its dividend. The firm has paid dividends for more than 80 years, including annual increases every year since 1973. That streak should continue regardless of the economic environment.
Kimberly-Clark will never be a fast-growing company, especially as it continues combatting private label products and the rise of online product distribution. However, it remains one of the best recession proof stocks that investors can hold with little fear of a drop in dividend income or a permanent loss of capital.
Read More: Kimberly-Clark Dividend Stock Analysis
11. Pepsico
Sector: Consumer Staples Industry: Soft Drinks
Recession Return: S&P 500 lost 55% from 2007 - 2009; PEP shares lost 35%
Dividend Growth Streak: 45 years
Pepsico is one of the oldest (founded in 1898 years) and largest drink and snack makers in the world, selling dozens of brands in over 200 countries and territories. The company owns 22 iconic brands (such as Pepsi, Gatorade, Tropicana, Lays, and Quaker) which each generate over $1 billion in sales.
Like Coca-Cola, Pepsico's products are recession resistant since people need to continue eating and drinking no matter how the economy is performing. In fact, the company's sales dipped just 0.5% during the Great Recession and its free cash flow per share actually increased.
Pepsico's wide moat is courtesy of its strong brands, built up over more than 100 years of steady advertising. The firm owns the top seven salty snack brands and claims that 90% of its retail sales are from brands with No. 1 or No. 2 sub-category share position.
Pepsico also boasts the industry's second largest distribution network which ensures it maintains dominant shelf space with retailers and can quickly scale new products it develops or acquires. That's an important advantage since Pepsico's long-term strategy is to diversify away from its namesake sparkling soda brands and into healthier offerings including in snacks.
For example, today over 40% of Pepsi's sales are from products with under 100 calories per serving, and it continues to expand its healthier offerings. That includes the launch of Bubly sparkling water in 2018. The company also recently announced the $3.2 billion purchase of SodaStream which is part of the company's long-term strategy to generate 66% of beverage volumes from healthier, lower calorie options by 2025.
Recession Return: S&P 500 lost 55% from 2007 - 2009; PEP shares lost 35%
Dividend Growth Streak: 45 years
Pepsico is one of the oldest (founded in 1898 years) and largest drink and snack makers in the world, selling dozens of brands in over 200 countries and territories. The company owns 22 iconic brands (such as Pepsi, Gatorade, Tropicana, Lays, and Quaker) which each generate over $1 billion in sales.
Like Coca-Cola, Pepsico's products are recession resistant since people need to continue eating and drinking no matter how the economy is performing. In fact, the company's sales dipped just 0.5% during the Great Recession and its free cash flow per share actually increased.
Pepsico's wide moat is courtesy of its strong brands, built up over more than 100 years of steady advertising. The firm owns the top seven salty snack brands and claims that 90% of its retail sales are from brands with No. 1 or No. 2 sub-category share position.
Pepsico also boasts the industry's second largest distribution network which ensures it maintains dominant shelf space with retailers and can quickly scale new products it develops or acquires. That's an important advantage since Pepsico's long-term strategy is to diversify away from its namesake sparkling soda brands and into healthier offerings including in snacks.
For example, today over 40% of Pepsi's sales are from products with under 100 calories per serving, and it continues to expand its healthier offerings. That includes the launch of Bubly sparkling water in 2018. The company also recently announced the $3.2 billion purchase of SodaStream which is part of the company's long-term strategy to generate 66% of beverage volumes from healthier, lower calorie options by 2025.
Pepsico also enjoys some of the strongest economies of scale, which allow it to run its business with extremely competitive operating costs. Management's current initiative is designed to cut annual costs by $1 billion over the next few years, which should further boost the company's solid margins.
Continued expansion of its healthier brands, as well as benefits from its leading market share positions in key emerging markets, should support Pepsico's ability to continue growing its earnings and free cash flow per share at a mid-single-digit annual pace going forward.
With a 45-year dividend growth track record and uninterrupted dividend payments dating back to 1965, income investors can sleep well knowing that Pepsico's payout should remain safe in virtually all manner of economic environments.
PEP's stock has proven to be defensive as well. While the S&P 500 lost 55% during the financial crisis, shares of Pepsico performed much better, declining only 35%. For these reasons, Pepsico is arguably one of the best recession proof stocks in the market.
Read More: Pepsico Dividend Stock Analysis
Continued expansion of its healthier brands, as well as benefits from its leading market share positions in key emerging markets, should support Pepsico's ability to continue growing its earnings and free cash flow per share at a mid-single-digit annual pace going forward.
With a 45-year dividend growth track record and uninterrupted dividend payments dating back to 1965, income investors can sleep well knowing that Pepsico's payout should remain safe in virtually all manner of economic environments.
PEP's stock has proven to be defensive as well. While the S&P 500 lost 55% during the financial crisis, shares of Pepsico performed much better, declining only 35%. For these reasons, Pepsico is arguably one of the best recession proof stocks in the market.
Read More: Pepsico Dividend Stock Analysis
12. Verizon
Sector: Telecom Industry: Integrated Telecom Services
Recession Return: S&P 500 lost 55% from 2007 - 2009; VZ shares lost 39%
Dividend Growth Streak: 12 years
Verizon is a giant telecom business with more than 116 million wireless retail connections, 5.9 million Fios internet subscribers, and 4.6 million Fios video subscribers. The company also has growing media and telematics businesses, although they accounts for less than 10% of total sales today.
Wireless operations, which include voice and data services and equipment sales, generate more than 85% of Verizon's EBITDA (earnings before interest, depreciation, and amortization). The company's 4G LTE network is available to more than 98% of the country's population, and Verizon is officially the largest wireless service provider in the U.S.
While peers such as AT&T have pursued splashy acquisitions to further blur the line between the telecom and media industries, Verizon has largely remained focus on delivering reliable wireless and wireline services over the best communications network in teh country.
The firm invests more than $15 billion annually to boost the capacity and reliability of its wireless network. As a result of its substantial investments in capital equipment and spectrum licenses, Verizon typically sits at the top of Root Metrics' rankings of wireless reliability, speed, and network performance.
As long as Verizon continues investing in its leading network coverage and architecture (the firm appears positioned to be a leader in 5G), the company should continue maintaining a massive base of subscribers. Disrupting Verizon’s base of customers would be next to impossible barring a revolutionary change in network technologies due to the industry's capital intensity and slow pace of growth.
Demand for wireless services is recession proof as well thanks to the importance of connectivity in today's world. Verizon's sales slipped just 1.2% during the financial crisis. Management raised the dividend, and Verizon's stock outperformed the S&P 500 by 16% from late 2007 through early 2009.
Looking ahead to the next downturn, Verizon does have more debt compared to pre-2008 as a result of its $130 billion deal in 2014 to acquire Vodafone's 45% interest in Verizon Wireless.
However, management is quickly reducing leverage, the firm maintains an investment grade credit rating, and Verizon's payout ratio is significantly lower than it was before the last recession. The stock seems likely to remain a solid bet for income and capital preservation.
Read More: Verizon Dividend Stock Analysis
Recession Return: S&P 500 lost 55% from 2007 - 2009; VZ shares lost 39%
Dividend Growth Streak: 12 years
Verizon is a giant telecom business with more than 116 million wireless retail connections, 5.9 million Fios internet subscribers, and 4.6 million Fios video subscribers. The company also has growing media and telematics businesses, although they accounts for less than 10% of total sales today.
Wireless operations, which include voice and data services and equipment sales, generate more than 85% of Verizon's EBITDA (earnings before interest, depreciation, and amortization). The company's 4G LTE network is available to more than 98% of the country's population, and Verizon is officially the largest wireless service provider in the U.S.
While peers such as AT&T have pursued splashy acquisitions to further blur the line between the telecom and media industries, Verizon has largely remained focus on delivering reliable wireless and wireline services over the best communications network in teh country.
The firm invests more than $15 billion annually to boost the capacity and reliability of its wireless network. As a result of its substantial investments in capital equipment and spectrum licenses, Verizon typically sits at the top of Root Metrics' rankings of wireless reliability, speed, and network performance.
As long as Verizon continues investing in its leading network coverage and architecture (the firm appears positioned to be a leader in 5G), the company should continue maintaining a massive base of subscribers. Disrupting Verizon’s base of customers would be next to impossible barring a revolutionary change in network technologies due to the industry's capital intensity and slow pace of growth.
Demand for wireless services is recession proof as well thanks to the importance of connectivity in today's world. Verizon's sales slipped just 1.2% during the financial crisis. Management raised the dividend, and Verizon's stock outperformed the S&P 500 by 16% from late 2007 through early 2009.
Looking ahead to the next downturn, Verizon does have more debt compared to pre-2008 as a result of its $130 billion deal in 2014 to acquire Vodafone's 45% interest in Verizon Wireless.
However, management is quickly reducing leverage, the firm maintains an investment grade credit rating, and Verizon's payout ratio is significantly lower than it was before the last recession. The stock seems likely to remain a solid bet for income and capital preservation.
Read More: Verizon Dividend Stock Analysis
13. Duke Energy
Sector: Utilities Industry: Diversified Utilities
Recession Return: S&P 500 lost 55% from 2007 - 2009; DUK shares lost 34%
Dividend Growth Streak: 11 years
Duke Energy is the largest electric utility in the country and serves 7.6 million customers in six states across the Southeast and Midwest regions of the U.S. The firm also has 1.6 million natural gas customers, resulting in a highly diversified, stable, and regulated cash flow stream.
In fact, close to 90% of cash flow is from its regulated businesses while the remainder is from its merchant power division and midstream (energy transportation) business which also enjoys long-term contracts with investment grade counterparties.
Many utility companies are essentially government regulated monopolies in the regions they operate in. Aside from in Ohio, all of Duke’s electric utilities operate as sole suppliers within their service territories, for example.
Power plants, transmission lines, and distribution networks cost billions of dollars to build and maintain in order to supply customers with power. Therefore, it isn’t economical to have more than one utility supplier in most regions because the base of customers is only so big relative to the investments required to provide them with electricity and gas.
Competition is further reduced by state utility commissions, which have varying degrees of power over the companies allowed to construct generating facilities.
As a result, Duke Energy has one of the industry's largest approved growth backlogs, which totals $37 billion in planned investment between 2018 and 2022 that should deliver predictable returns. The utility believes these opportunities will help it achieve long-term earnings per share growth (and thus dividend growth) of 4% to 6% per year.
Recession Return: S&P 500 lost 55% from 2007 - 2009; DUK shares lost 34%
Dividend Growth Streak: 11 years
Duke Energy is the largest electric utility in the country and serves 7.6 million customers in six states across the Southeast and Midwest regions of the U.S. The firm also has 1.6 million natural gas customers, resulting in a highly diversified, stable, and regulated cash flow stream.
In fact, close to 90% of cash flow is from its regulated businesses while the remainder is from its merchant power division and midstream (energy transportation) business which also enjoys long-term contracts with investment grade counterparties.
Many utility companies are essentially government regulated monopolies in the regions they operate in. Aside from in Ohio, all of Duke’s electric utilities operate as sole suppliers within their service territories, for example.
Power plants, transmission lines, and distribution networks cost billions of dollars to build and maintain in order to supply customers with power. Therefore, it isn’t economical to have more than one utility supplier in most regions because the base of customers is only so big relative to the investments required to provide them with electricity and gas.
Competition is further reduced by state utility commissions, which have varying degrees of power over the companies allowed to construct generating facilities.
As a result, Duke Energy has one of the industry's largest approved growth backlogs, which totals $37 billion in planned investment between 2018 and 2022 that should deliver predictable returns. The utility believes these opportunities will help it achieve long-term earnings per share growth (and thus dividend growth) of 4% to 6% per year.
Another appeal of Duke Energy as a recession-resistant investment is its financial health. The company maintains an excellent A- credit rating which has allowed Duke Energy to line up all the financing it needs to execute on its growth plan.
However, the firm's dividend track record is even more impressive. Not only has Duke Energy been growing its payout every year since 2007, but it's paid uninterrupted dividends for over 90 years. This demonstrates how its super stable, wide moat business model is great for supporting generous and steadily rising dividends during all economic environments.
The other attribute conservative income investors might appreciate is the stock's low volatility. Even during market corrections DUK shares tend to fall far less than the market. For example, in the most recent correction in 2018 Duke shares fell just 5.2% while the broader market dipped 10%.
And during the financial crisis Duke Energy's shares slumped just 34% while the S&P 500 tumbled 55%. In other words, Duke Energy, with its strong balance sheet, highly stable cash flow, and steady dividend growth, is a good choice for low-risk income investors during recessions and bear markets.
Read More: Duke Energy Dividend Stock Analysis
However, the firm's dividend track record is even more impressive. Not only has Duke Energy been growing its payout every year since 2007, but it's paid uninterrupted dividends for over 90 years. This demonstrates how its super stable, wide moat business model is great for supporting generous and steadily rising dividends during all economic environments.
The other attribute conservative income investors might appreciate is the stock's low volatility. Even during market corrections DUK shares tend to fall far less than the market. For example, in the most recent correction in 2018 Duke shares fell just 5.2% while the broader market dipped 10%.
And during the financial crisis Duke Energy's shares slumped just 34% while the S&P 500 tumbled 55%. In other words, Duke Energy, with its strong balance sheet, highly stable cash flow, and steady dividend growth, is a good choice for low-risk income investors during recessions and bear markets.
Read More: Duke Energy Dividend Stock Analysis
14. Public Storage
Sector: Real Estate Industry: Specialized REITs
Recession Return: S&P 500 lost 55% from 2007 - 2009; PSA shares lost 38%
Dividend Growth Streak: 0 years
Public Storage went into business in 1972 and is the largest self-storage REIT in country with more than 2,400 storage rental properties in 38 states and over one million customers. The company also owns a 42% stake in PS Business Parks (PSB), which leases out commercial space to small and mid-size businesses.
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. As long as people continue experiencing major life events such as an unexpected move or divorce, there will be demand for self-storage warehouses.
While consumers spend less during recessions, they still need a place to store their stuff. Simply put, the industry is very stable and predictable 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 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 and the population continues aging, 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 payment appears to be on solid ground and has an impressive track record; Public Storage has paid uninterrupted quarterly dividends since 1981.
The company also has a very conservative balance sheet, earning it a strong investment grade credit rating, and should remain a cash cow given the lack of capital required to run this business. Therefore, Public Storage appears to be a quality recession proof stock to consider.
Read More: Public Storage Dividend Stock Analysis
Recession Return: S&P 500 lost 55% from 2007 - 2009; PSA shares lost 38%
Dividend Growth Streak: 0 years
Public Storage went into business in 1972 and is the largest self-storage REIT in country with more than 2,400 storage rental properties in 38 states and over one million customers. The company also owns a 42% stake in PS Business Parks (PSB), which leases out commercial space to small and mid-size businesses.
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. As long as people continue experiencing major life events such as an unexpected move or divorce, there will be demand for self-storage warehouses.
While consumers spend less during recessions, they still need a place to store their stuff. Simply put, the industry is very stable and predictable 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 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 and the population continues aging, 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 payment appears to be on solid ground and has an impressive track record; Public Storage has paid uninterrupted quarterly dividends since 1981.
The company also has a very conservative balance sheet, earning it a strong investment grade credit rating, and should remain a cash cow given the lack of capital required to run this business. Therefore, Public Storage appears to be a quality recession proof stock to consider.
Read More: Public Storage Dividend Stock Analysis
15. Realty Income
Sector: Real Estate Industry: Retail REIT
Recession Return: S&P 500 lost 55% from 2007 - 2009; O shares lost 43%
Dividend Growth Streak: 24 years
Realty Income is America's largest triple net lease REIT with a highly diversified portfolio of nearly 5,500 retail, industrial, office, and agricultural properties in 49 states and Puerto Rico, leased to 257 tenants in 48 industries.
Recession Return: S&P 500 lost 55% from 2007 - 2009; O shares lost 43%
Dividend Growth Streak: 24 years
Realty Income is America's largest triple net lease REIT with a highly diversified portfolio of nearly 5,500 retail, industrial, office, and agricultural properties in 49 states and Puerto Rico, leased to 257 tenants in 48 industries.
The company enjoys a very profitable business model because its tenants sign long-term leases (the average remaining lease term is around 9 years) and agree to pay for maintenance, property taxes, and insurance.
Further increasing the security of its cash flow and dividend is management's focus on highly recession resistant tenants (75% of rent) as well as those in experiential and e-commerce resistant industries. In total, Realty Income estimates that 94% of rent is not at risk during a recession or from the increasing popularity of online retail.
And because of its focus on durable tenants and high quality locations, Realty Income enjoys excellent occupancy which has never fallen below 96.6%, even during the Great Recession.
Due to its low-risk business model, Realty Income has been able to grow its dividend every quarter since its IPO (24 straight years), putting it on track to become a dividend aristocrat in 2019. Impressively, the REIT has also been able to grow its adjusted funds from operations per share in 21 of the last 22 years, even during the worst economic downturn since World War II.
In addition, Realty Income's stock enjoys relatively low volatility and only fell 43% during the Financial Crisis. That may not sound like a low volatility stock, but keep in mind that the financial crisis was rather unique.
Unlike most recessions, in which credit markets continue to function normally, during the Great Recession the seizing up of debt markets hit REITs especially hard, forcing many to cut dividends in order to preserve cash.
As a result, the average REIT lost 64% from October 2007 through March 2009 while the S&P 500 crashed 55%. Realty Income's 43% drop was one of the smallest in the sector.
Read More: Realty Income Dividend Stock Analysis
Further increasing the security of its cash flow and dividend is management's focus on highly recession resistant tenants (75% of rent) as well as those in experiential and e-commerce resistant industries. In total, Realty Income estimates that 94% of rent is not at risk during a recession or from the increasing popularity of online retail.
And because of its focus on durable tenants and high quality locations, Realty Income enjoys excellent occupancy which has never fallen below 96.6%, even during the Great Recession.
Due to its low-risk business model, Realty Income has been able to grow its dividend every quarter since its IPO (24 straight years), putting it on track to become a dividend aristocrat in 2019. Impressively, the REIT has also been able to grow its adjusted funds from operations per share in 21 of the last 22 years, even during the worst economic downturn since World War II.
In addition, Realty Income's stock enjoys relatively low volatility and only fell 43% during the Financial Crisis. That may not sound like a low volatility stock, but keep in mind that the financial crisis was rather unique.
Unlike most recessions, in which credit markets continue to function normally, during the Great Recession the seizing up of debt markets hit REITs especially hard, forcing many to cut dividends in order to preserve cash.
As a result, the average REIT lost 64% from October 2007 through March 2009 while the S&P 500 crashed 55%. Realty Income's 43% drop was one of the smallest in the sector.
Read More: Realty Income Dividend Stock Analysis