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3 Stocks You’ll Want To Own During The Next Recession

Posted On June 20, 2018 2:22 pm
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Three Top Recession Stocks Worth Buying Today

Consumer Staples: Pepsi (PEP):

Yield: 3.5%

Beta: .68 (32% less volatile than S&P 500)

Long-term dividend growth potential: 7.0%

Projected long-term total return: 10.5% (S&P 500 total return since 1871 9.2%)

Total Return During Financial Crash: -35.5% (S&P 500 fell 55%)

Valuation: 24% Beneath Fair Value

Dividend Growth Streak: 55 Years (Dividend King)

Pepsi is famous for its incredible ability to raise its dividend every year no matter what. That’s thanks to its incredibly consistent cash flow generated by consumers’ love of its 22 mega brands ($1+ billion in annual sales). While it’s most famous for its namesake sodas, 25% of sales are from its higher margin snack foods division which accounts for 45% of it profits. Pepsi has done a great job transitioning to a future where more health conscious consumers shy away from sugary drinks. That’s why currently 45% of the company’s total sales consist of “Guilt-Free”  (healthier) products, and 25% of revenue is comprised of “Everyday Nutrition” products, like grains, fruits, and vegetables, or protein. These products also include beverages that are naturally nutritious like water and unsweetened tea. Pepsi is also very well positioned to benefit from fast growing emerging markets (it’s especially dominant in India) and current generates 42% of its revenue overseas.

Healthcare: Johnson & Johnson (JNJ)

Yield: 2.9%

Beta: 0.73 (27% less volatile than S&P 500)

Long-term dividend growth potential: 7.6%

Projected long-term total return: 10.5% (S&P 500 total return since 1871 9.2%)

Total Return During Financial Crash: -26.3% (S&P 500 fell 55%)

Valuation: 6% Beneath Fair Value

Dividend Growth Streak: 65 Years (Dividend King)

Founded in 1885, Johnson & Johnson is the world’s largest healthcare company with over 250 subsidiaries manufacturing products in over 60 countries around the globe.The company is very well diversified with pharmaceuticals, medical devices, and consumer products making up: 47%, 29%, and 18% of sales in the most recent quarter. The key to Johnson and Johnson’s success is the highly conservative and disciplined management team which runs the company with a long-term focus on maximizing growth but above all else delivering highly consistent and clockwork like dividend increases. The company benefits from numerous growth catalysts including emerging markets: (55% of revenue is international, 27% in Asia and Latin America). In addition JNJ’s medical devices and consumer brands businesses are booming overseas and likely to continue doing well as the world’s population rises, society’s age (need more healthcare), and the global economy grows (richer people can afford more healthcare products).

Utilities: Dominion Energy (D)

Yield: 5.0%

Beta: 0.3 (70% less volatile than S&P 500)

Long-term dividend growth potential: 5.8%

Projected long-term total return: 10.8% (S&P 500 total return since 1871 9.2%)

Total Return During Financial Crash: -33.4% (S&P 500 fell 55%)

Valuation: 33% Beneath Fair Value

Dividend Growth Streak: 15 Years (Dividend Achiever)

Dominion Energy was founded in 1909 and serves 6 million electric and gas customers in 17 states. The company is attempting to purchase SCANA (a South Carolina utility) which would boost that customer count to 7.6 million. 90% of Dominion’s earnings are generated from regulated electrical and gas businesses in which it is guaranteed a certain return on equity and return on its rate base (assets ROE is applied to). The super stable nature of the business, coupled with a very aggressive growth plan (investing about $4 billion per year to expand its regulated assets) means that Dominion is one of the fastest growing regulated utilities in America. Management is guiding for 10% dividend growth in 2018 and 2019 and then 6% to 10% in 2020. Beyond that the company’s growth backlog of $4 to $5 billion (if they buy SCANA) per year means management is confident it can deliver long-term earnings (and probably dividend) growth of “at least 5%”. Dominion’s growth catalysts include greater regulatory approval for growth projects in fast growing states like Virginia, Georgia, and South Carolina, as well as a midstream business that benefits from America’s ongoing epic natural gas boom.

 

About author

Dividend Sensei
Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I currently write for both Seeking Alpha, Simply Safe Dividends, and DividendSensei.com My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams, and enrich their lives. With 22 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams. I'm currently on an epic quest to build a broadly diversified, high-quality, high-yield dividend growth portfolio that: 1. Pays a 5% yield 2. Offers 7% annual dividend growth 3. Pays dividends AT LEAST on a weekly, but preferably, daily basis

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