The bad news keeps coming for businesses and the economy. That’s why I’ve put together this list of the best recession-proof stocks. These investments should see fewer drawbacks as the market continues to fall. And on top of that, these stocks continue to pay their investors a steady stream of dividends.
To get started, let’s take a look at some recession news and indicators. This can help give you a better idea of what to expect. Then, with that in mind, we’ll dive into stocks that do well in a recession.
Recession and news indicators
One of the most alarming indicators is the inversion of the yield curve. Every time it falls into negative territory in recent history, a recession has followed soon after. You can see this in the graph below, which comes from the Federal Reserve Bank of St. Louis…
Shaded bars show past recessions and if this pattern continues, another recession is on the horizon. This metric is currently at one of the lowest numbers we have seen, at -0.42%. And to get that number, it’s the 10-year Treasury rate minus the 2-year Treasury rate.
This means that investors are willing to hold money for 10 years at a lower rate than for 2 years at a higher rate. This is counterintuitive when thinking about the time value of money. Although, there are many factors at play.
To control inflation, the Federal Reserve has started raising interest rates and this is starting to send shock waves throughout the economy. It’s a key reason why I’m considering investing in the best recession-proof stocks. They can help lessen the blow of a big recession.
Stocks That Do Well During a Recession
With an upcoming Fed meeting, most investors expect a 0.75% rate hike. The Fed is in a difficult situation and has to put the brakes on to cool down inflation. It’s making it harder for people and businesses to borrow money. And always remember, one person’s spending is another person’s income.
The economy is starting to contract and more companies are cutting back. In many areas of the economy, layoffs have increased. For example, Twilio recently announced that it will lay off about 800 employees. Also recently, the CEO of FedEx he said he expects the economy to enter a global recession.
As the leader of a major package delivery company, he has direct insight into the health of the economy. On top of that, many other executives have also given worse guidance going forward.
It doesn’t look good, but there are many companies that do better than others during a recession. The best recession-proof stocks tend to be in industries that continue to produce steady cash flows.
For example, people still need to eat no matter what the economy is doing. That is why you will find some food reserves in the list below. And without further ado, let’s dive in…
- mcdonald’s (New York Stock Exchange: MCD) – 2.2%
- Goal (New York Stock Exchange: TGT) – 2.6%
- walmart (NYSE: WMT) – 1.7%
- Procter & Gamble (New York Stock Exchange: PG) – 2.7%
- Johnson and Johnson (New York Stock Exchange: JNJ) – 2.7%
- Coke (New York Stock Exchange: KO) – 3.0%
- Verizon (New York Stock Exchange: VZ) – 6.3%
- flower food (New York Stock Exchange: FLO) – 3.4%
- CVS Health (New York Stock Exchange: CVS) – 2.2%
- altria (New York Stock Exchange: MO) – 8.9%
All of these recession-proof stocks pay dividends. That’s why I’ve also included their dividend yields. And if you can reinvest dividends, you can increase your future income. To see how it works, check out this free dividend reinvestment calculator.
A recession is always tough, but those who prepare can survive and thrive during a downturn. History shows that it is an inevitable pattern. Timing is always tough, but today there are some telling indicators to make better guesses about what is to come.
I hope these recession-proof stocks help build a diversified portfolio. Dividend income from them can help lessen the blow of a recession. And if you have some cash on the sidelines, we may see better buying opportunities soon.
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Brian Kehm majored in finance and accounting at Iowa State University. After graduating, he started working for a cryptocurrency company in Beijing. Upon returning to the US, he began working with financial publishers and also passed the CFA exams. When Brian isn’t researching and sharing ideas online, he can usually be found rock climbing or exploring the great outdoors.