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With the S&P 500 testing new all-time highs, the thought of a recession and a bear market is typically far from investors’ minds. However, being prepared with potentially good investments in a bearish climate is a way to be prepared as the market begins to top out. The fact these companies provide income in the form of dividends that are higher than the S&P 500 means that you get paid to wait or get money to hedge your positions.
The following six companies have a history of paying a consistent dividend that pays over a 2% yield and typically outperform in a bearish climate.
Recession Resistant Stock #1: PepsiCo, Inc (NASDAQ: PEP)
Pepsi is back in its trading range from last fall before the sell-off in February and March. The company currently pays a 2.98% forward dividend yield and has a 5-year dividend growth rate of 8.6%. The current yield is near the 10-year median value of 2.82%.
In the past few years, the company has seen its free cash flow decline from $7.36 billion in 2016 to $5.47 billion in 2019, but the free cash flow generated is greater than the dividends paid in the previous fiscal years. Given that we’re currently in recession the stable earnings and revenue picture along with its 5.48% 5-year projected EPS growth rate is a reflection the fact that the company is a consumer staple.
Recession Resistant Stock #2: Hershey Co (NYSE: HSY)
Hershey’s share price is back to where it began 2020 and the stress level of our current economic and social climate can’t help but contribute to chocolate eating.
All kidding aside, the company pays a 2.16% dividend yield and has a 5-year average dividend growth rate of 7.7%. The dividend yield is slightly below the 10-year median yield of 2.3%, but the growth rate helps when buying at a slightly lower yield.
Hershey has seen positive revisions for their 2020 and 2021 fiscal year EPS estimates in the past 30 days and has a 5-year projected EPS growth rate of 6.78%.
Recession Resistant Stock #3: Lockheed Martin Corporation (NYSE: LMT)
As an aerospace and defense contractor, the company is well-positioned in a climate of military and expanding federal government spending. Global unrest is an excuse for governments to increase military and other spending to create inflation.
The company pays a 2.44% forward annual dividend yield and has a 5-year dividend yield growth rate of 10.3%. Currently, the company only pays out 41% of their net income in dividends, which provides plenty of potential for dividend growth. The current dividend yield is in the lower end of its 10-year range, but with a high growth rate, steady business and low payout ratio, it still represents a good investment opportunity in a difficult climate.
Recession Resistant Stock #4: Philip Morris International Inc (NYSE: PM)
You know how “sin stocks” go in a recession. Who’s really going to quit smoking unless as a last resort financially during difficult times.
The company currently pays an extraordinary dividend yield of 5.88% and a 5-year dividend growth rate of 3.5%. The higher yield and payout ratio mean slower growth in the dividend, but the 5% yield is the trade-off.
Phillip Morris has a strong track record of beating analyst estimates and had significant positive EPS revisions for the 2020 and the 2021 fiscal years just over 30 days ago.
Recession Resistant Stock #5: H & R Block Inc (NYSE: HRB)
They say the only certainty in life is death and taxes. Therefore, if you’re involved in helping people with their taxes, you are well-positioned in any economic climate. The company has been hit a little because of COVID-19 policies, which is reflected by the 4.4% projected decline to 2020 earnings, but the company is expected to snap back next year and has a 5-year projected EPS growth rate of 5.27%.
The company pays the highest yield of any stock on this list at 7.05%. the payout ratio is extremely high, but the free cash flow the company is generating in recent years has been consistently higher than the amount of dividends paid.
Recession Resistant Stock #6: Campbell Soup Company (NYSE: CPB)
Campbell’s has been able to reinvent itself with younger consumers and has faired better in recent years. It currently pays a 2.66% dividend yield, which is below the 10-year median value. It’s higher payout ratio means that the growth opportunities of the dividend are limited and is reflected in the 3% 5-year dividend growth rate. That being said, the company pays out only around half of the free cash flow generated by the company in dividends.
Over the past four quarters, they have beaten analyst estimates and received significant analyst upgrades to their 2020 and 2021 EPS a little over 60 days ago.