Monday, October 20, 2008

dividend stocks for a weak economy

If we truly are headed into a deep recession domestically as well as globally, the stocks of companies that provide goods and services that we are unlikely to go without during a recession are probably a good bet to continue to grow earnings and dividends throughout a slowdown. The problem is that many of these companies have not been sold off as hard as some of the more economically sensitive names due to investors being aware of this very fact. Paying closer attention to these types of stocks when selecting investments is one strategy; probably the more conservative option, during times like these.

Another strategy is to look for deep value in companies that are economically sensitive, and thus have been sold off dramatically, but should be able to thrive again when growth resumes. In either strategy, especially the latter, a low pay out ratio (the amount of money paid out as dividends as a percentage of earnings) is ideal.

Nevertheless, here are some stocks that at least warrant a look for conservative investors looking to be defensive as we enter the downturn:

Pepsico Inc. (PEP) - 3.2% yield - Snacks, juice, soda, and oatmeal.
Unilever N.V. (UN) - 6.2% yield - Soap, margarine, soup, olive oil, etc.
Johnson & Johnson (JNJ) - 2.9% yield - Health care, Band-Aids, Tylenol.
Diageo PLC (DEO) - 5.3% yield - Alcoholic beverages.
Phillip Morris International (PM) - 5.0% yield - Tobacco products.
Rogers Communications (RCI.B) - 3.0% yield - phone, cable TV, & Internet
Telus (T.A) - 4.8% yield - phone, cable TV, & Internet
Enbridge Inc. (ENB) - 3.5% yield - Energy distribution.
Fortis Inc. (FTS) - 4.3% yield - Utilities.
TransCanada Corp. (TRP) - 4.3% yield - Pipelines/Utilities.
Canadian Utilities (CU) - 3.5% yield - Utilities.

No matter how bad the economy gets you'll still have people sitting on their couch smoking, watching cable TV, eating Doritos®, and drinking Guinness® by the can. In the morning they'll use soap in the shower after taking some Tylenol® for their hangover.

I've tried to not include stocks which I feel are still a little on the expensive side, indicating a flight to safety into these names. Reported yields were as of the market open this week.


Anonymous said...

I'm partial to another sin stock in these recessionary times: namely Liquor Stores Income Fund.

The fund has stores in BC, Alberta, and Alaska: there isn't going to be a mass exodus from these markets, even if the price of oil goes to $50. Plus, if there is less cash floating around, people are more likely to drink at home than go out.

It has been killed recently, largely over fears on how its going to convert back to a corporate structure. However, it's a cash business an generally has higher sales from September to February. It pays $.135 a month, for a current yield of 12.2%

If your readers aren't sin stock adverse, it may be worth a look.

MG (moneygardener) said...

Interesting anon. I purposely did not include any trusts however there are several that looks attractive and recession resistant as well.

Anonymous said...

nice pick on he liquor store income trust. You're right even in a recession ppl will still drink and possibly even drink more!!

Nurse B, 911 said...

I've got direct/indirect exposure to 6 of those stocks and over the long-term I think you'd benefit from all or just some.

You can't beat dividends right now!

Dividend Growth Investor said...


That's a great list. I would add PG, MCD, KO and MO to it. I also like WMT at or below $50..

I missed on DEO so any dips would be much appreciated there..

Anonymous said...

How do you MG or others factor in your analysis-the currency risk of US dividend paying stocks and the lack of the dividend tax credit /, I believe the interest/dividend equivalent is $1: $1.40, that is a 40 % hurdle you have to jump through, appreciate everyones comments.

MG (moneygardener) said...

Lyndon, That's the way the cookie crumbles. If you want exposure to these names in an accessible account there are not any other options. If I can get equivalent exposure in Canada I'll buy the Canadian version. (ie Fortis vs. Excelon or Husky vs. Exxon)

Anonymous said...

Food for thought:

Dividends4Life said...

Great list! I too would add PG. Too many good buys, not enough money!

Best Wishes,

Andrew said...

Been using Google Financial to look at some of the charts and information on these stocks. Just wondering why the dividend information is only posted on the stocks traded on the US exchanges and not the Toronto exchange?

Anonymous said...

A follow up question on investing in the US would investing in Unilever reduce the currency risk to a high US dollar as this company is based in Europe?

Another question I would like your comment on. I hold Chevron Stock, decent dividend yield 4.1%. Stock has been hit as are the other energy companies in the downturn. Given that I would like to keep an oil company and the rise in the American Dollar is probably overdone. Would it make sense to sell this stock and get a Canadian Stock such as Husky Energy? Any comments would be appreciated.