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8 Dividend Stocks to Buy for a Recession

Josh Enomoto

With the major indices scoring a fairly strong September, recession fears may have subsided for some. Plus, certain metrics for the U.S. economy appear healthy, suggesting that the bears are overplaying their hand. Thus, loading up on dividend stocks to buy for a coming downturn seems unnecessary.

Of course, I don’t have a crystal ball: none of us do. Perhaps President Trump can convince the Federal Reserve to perform some fiscal voodoo, keeping the party going. Still, I believe that no matter what your perspective is, dividend stocks represent an important component of your portfolio, and especially at this juncture.

First, let’s look at reality. According to data from the Federal Reserve Economic Research, the average price of a house sold jumped over 37% since the beginning of this decade. In contrast, the hourly earnings of all employees only gained a little over 25% during the same period. In many markets, housing affordability greatly exceeds personal income. That’s probably not a sustainable situation, which bolsters the case for recession-resistant dividend stocks to buy.

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Second, it’s not just the U.S.-China trade war that drives the case for contextually defensive dividend stocks. Because we live in a globalized economy, nothing occurs in a vacuum. Germany is finding that out the hard way, with exports to China suffering due to geopolitical conflicts. And if Germany goes down, it could send a ripple effect everywhere else.

Finally, the stock market’s total market capitalization is 144% of the last reported GDP. That’s extreme speculation, meaning you better be right about your non-recession call. Otherwise, here are eight dividend stocks to buy:


Dividend Stocks to Buy for a Recession: Dollar General (DG)

Dividend Stocks to Buy for a Recession: Dollar General (DG)

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I usually don’t like to start off my list with speculative or overheated names. However, I’m going to make an exception for Dollar General (NYSE:DG). Yes, DG stock has absolutely soared so far this year, gaining over 48% since January’s opening session. Also, I concede that after a huge jump late August, shares are liable to come down.

When or if they do, however, I’d look into picking up shares. Primarily, the enthusiasm over DG stock has fundamental justification. Both Dollar General and rival Dollar Tree (NASDAQ:DLTR) produced solid earnings results overall. For Dollar General, the discount retailer raised its full-year guidance despite the ongoing U.S.-China trade war.

Secondly, I think investors can reasonably expect bullishness to underline DG stock if our economy weakens. With wage growth not keeping pace with housing prices, a good-sized shock could disproportionately impact our labor market. That would drive increased traffic to discount retailers.

Of course, compared to other dividend stocks to buy, Dollar General’s yield is nothing to write home about. But with its relevant business, DG may offer some capital growth to compensate.


Home Depot (HD)

Dividend Stocks to Buy Home Depot (HD)

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Logically, recessions make everything worse. Not only must you complete your usual routine, you also must do so with potentially less funds. But what’s truly problematic is that recessions don’t coincide to fit your timetable conveniently. If something goes wrong, it’ll go wrong when it wants to. And that simple thesis underlines Home Depot (NYSE:HD) and HD stock.

As with Dollar General, HD stock has outperformed many other dividend stocks. Therefore, I’m not necessarily fishing to buy shares right now, especially near all-time highs. But with every dip and dive, HD stock becomes increasingly appealing.

First, in my opinion, Home Depot has a moat against Amazon (NASDAQ:AMZN). While modern shoppers have gravitated toward the e-commerce platform, many shoppers prefer the brick-and-mortar experience. A big reason why is because they can see and test out products before purchase. This is especially crucial for home repair or renovation projects.

Second, cash-strapped families are more likely to shop at Home Depot during an economic downturn. Video platforms like Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube have made do-it-yourself projects more accessible. Indirectly, this benefits HD stock as people are financially incentivized to roll up their sleeves.


Procter & Gamble (PG)

Dividend Stocks to Buy Procter & Gamble (PG)

Source: Jonathan Weiss / Shutterstock.com

A common theme among defensive dividend stocks to buy is that they have outperformed this year. For those who don’t believe that we’re facing a recession, they may want to consider why names like Procter & Gamble (NYSE:PG) have delivered robust market returns. On a year-to-date basis, PG stock has jumped 36%.

In a world where drones fly your online purchases to your door, what Procter & Gamble offers seems incredibly boring: toothpaste, tampons, hair products, dishwashing liquid and laundry detergent, among many other product categories. At the same time, these are also necessities: unless it’s an extremely severe one, recessions don’t prevent people from taking care of themselves. Hence, you have your case for PG stock.

Moreover, as a stalwart among blue-chip dividend stocks, Procter & Gamble represents a safety valve for your portfolio. This is not a get-rich-overnight investment. It might not make you rich at all. However, the secular demand for the company’s products should help PG stock weather the storm.


PepsiCo (PEP)

Dividend Stocks to Buy PepsiCo (PEP)

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While recession-resistant consumer dividend stocks tend to emphasize the necessities, PepsiCo (NASDAQ:PEP) demonstrates that’s not always the case. Since the start of this year, PEP stock has jumped over 27%. For traditional soft drink makers, the bullishness in this arena is a welcome change.

For many years, investors avoided PEP stock and rival Coca-Cola (NYSE:KO) because of shifting consumer behaviors. The major problem was that younger consumers eschewed sugary, carbonated drinks for healthier alternatives. That has led to frustrating sideways consolidation for shares of Coca-Cola, as well as PEP stock.

To their credit, neither PepsiCo nor Coca-Cola took the consumer behavioral change lying down. Specifically for PepsiCo, management shifted their priorities to higher-growth beverage segments, such as energy drinks. They’ve also invested heavily in Bubly, Pepsi’s sparkling water brand.

Best of all, these changes are working. PepsiCo scored an earnings and revenue beat for its second-quarter report. Also, a recession might provide an unexpected lift for PEP stock. In a downturn, beggars can’t be choosers. Therefore, don’t be surprised to see a lift in cheap, sugary soft drinks.


Disney (DIS)

Dividend Stocks to Buy Disney (DIS)

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Among dividend stocks to buy, Disney (NYSE:DIS) presents a very tricky case. On the bearish end of the spectrum, the trade war has a direct impact on the global tourism industry. Recently, the Financial Review noted that fewer Chinese tourists are visiting Australia, sounding alarm for the nation’s tourism industry.

If the Chinese aren’t visiting countries close to them, they’re certainly less inclined to visit the U.S. Naturally, this may hurt DIS stock, which enjoys a dominant presence in the theme park and resort space.

On the other hand, Disney owns multiple resorts and entertainment properties throughout Asia. Even in economically rough circumstances, many families like to treat themselves to an excursion.

Plus, other elements of Disney’s businesses are quite compelling in a slump. For example, the company is rolling out their streaming service called Disney+. It features the Magic Kingdom’s lucrative content library, along with shows inspired by marquee franchises like Star Wars. That’s a huge plus for DIS stock.

As far as the yield goes, many other dividend stocks offer superior passive income. However, Disney has a very stable business that becomes net more attractive in a recession.


AT&T (T)

Dividend Stocks to Buy AT&T (T)

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Although it frequently pops up in lists of dividend stocks to buy, AT&T (NYSE:T) is somewhat of a controversial name. That’s because the telecom giant has been very acquisitive, and many observers don’t view this as a positive attribute. Principally, AT&T’s $85 billion buyout of TimeWarner seemed excessive to conservative investors.

For a while, the detractors were dead-on with their assessment. Since the early spring of 2017, T stock was mired in an ugly bearish trend channel. At its worst, shares closed below $30 in December of last year.

However, since hitting that bottom, T stock has looked much more interesting. I’ll admit that the capital growth narrative is a more of a slow grind. But that’s what dividend stocks do, right? Additionally, while it inched higher, shareholders received a nice payout.

Over the long run, I believe T stock has potential. First, the 5G rollout cannot occur with giants like AT&T and rival Verizon (NYSE:VZ) investing in the infrastructure. Second, while the TimeWarner deal was expensive, it does give the company a valuable content empire.


Cinemark (CNK)

Dividend Stocks to Buy Cinemark (CNK)

Source: Rennett Stowe via Flickr (modified)

Over the past few months, I’ve consistently forwarded the argument that recessions place a premium on sources of entertainment. Although Americans are generally hard-working and have a history of working harder when the times get tough, we’re not robots. We do need our downtime, a distraction from our daily troubles. This is where Cinemark (NYSE:CNK) and CNK stock come into the picture.

Under the Cinemark umbrella, the company has multiple brands: its namesake brand, Century Theatres, Tinseltown USA, CineArts and Rave Cinemas. This allows the company to cater to different tastes. Audience members can watch summer blockbusters in Century Theatres, often located in major metropolitan areas. For those who prefer classier affairs, they can enjoy films showing at CineArts.

But what really drives interest for CNK stock is its comparatively low overhead. Cinemark features fewer locations in high-rent areas. Therefore, the company is more profitable than its rivals.

Another important factor for CNK stock is Cinemark’s lower ticket prices relative to the competition. With a possible recession on the horizon, low-cost leaders will look more attractive. Therefore, don’t overlook Cinemark in your short list of dividend stocks to buy.


AMC Entertainment (AMC)

AMC Entertainment (AMC) Dividend Stocks to Buy

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Touting Cinemark’s comparatively low overhead, there doesn’t seem to be much reason to talk about AMC Entertainment (NYSE:AMC). Sure, people want a distraction from their troubles. Additionally, as I’ve mentioned before about AMC stock, it’s money well spent. When you compare buying movie tickets to watching professional sports live, there’s no comparison.

However, you can also say the same about Cinemark. So what makes AMC stock worth buying, especially considering the company’s lower margins relative to Cinemark? It comes down to that one word repeated three times: location, location, location.

Take a look at Cinemark’s southern California locations: I count a whopping 22 theaters. This covers Los Angeles County and a handful of locations in Riverside and Orange counties. Interestingly, San Diego gets zero love.

Now compare that to AMC. Throughout high-market areas, you get extensive representation. Plus, AMC Theatres tend to be located in nicer neighborhoods.

If these factors aren’t enough to convince you to buy AMC stock, it also pays a nearly 7% dividend yield for your troubles.

As of this writing, Josh Enomoto was long T stock and AMC stock.

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