Many people believe a recession is looming as macro indicators flash red across the board. The Sahm Rule was recently activated. An inverted yield curve has also historically preceded recessions. Moreover, with the Federal Reserve poised to cut rates and unemployment figures rising, the writing seems to be on the wall.
In my view, it’s time to start battening down the hatches. I’d consider taking some profits on high-flying stocks that have rallied hard over the past couple of years. Rotating those profits into more defensive, recession-resistant dividend payers and parking some cash in Treasury bills looks like a good idea.
That said, let me be clear — there’s no such thing as a truly “recession-proof” stock. In a serious economic downturn, almost everything gets sold off as investors flee to safety. However, certain companies with sticky revenues and durable competitive advantages tend to hold up better than most. While their stocks may still decline, the underlying businesses can keep churning out cash to pay dividends. Here are seven such recession-proof dividend stocks:
Atmos Energy (ATO)
Atmos Energy (NYSE:ATO) is a regulated natural gas distribution and pipeline company serving over 3 million customers across eight states. The company recently reported solid fiscal Q3 2024 results, with diluted earnings per share rising to $6.00 from $5.33 a year ago, driven by favorable regulatory outcomes, customer growth and strong performance in its pipeline segment.
I believe Atmos Energy is one of the top natural gas utilities you can invest in for steady income and growth. While the mere mention of “energy” may scare off some investors, companies focused on gas distribution and pipelines tend to be highly stable and recession-resistant. After all, people need to heat their homes even during economic downturns.
With cold weather on the horizon, Atmos is well-positioned to meet demand. Analysts seem bullish, too. Zacks rates Atmos a “Buy,” citing its top-tier growth.
The current dividend yield of 2.15% also provides a solid income stream.
Kimberly-Clark (KMB)
Kimberly-Clark (NYSE:KMB) manufactures and markets personal care and tissue products worldwide. The company reported solid second-quarter 2024 results, with revenue of $5 billion driven by 4% organic growth, and raised its full-year outlook on the back of strong first-half performance.
I believe Kimberly-Clark’s products like Huggies diapers, Kleenex tissues and Cottonelle toilet paper are about as recession-resistant as you can get. It’s hard to imagine consumers significantly cutting back on these essential items even in an economic downturn. Kimberly-Clark’s products represent a small, non-discretionary portion of household budgets.
This defensive nature has kept KMB stock trading at a premium, with many investors parking money in low-risk assets like Kimberly-Clark. While this limits upside potential, I expect the stock to continue its sideways trajectory, as seen since 2016.
You can collect the attractive 3.5% dividend yield while you wait. As interest rates likely head lower, KMB’s yield will look even better compared to falling treasury yields.
Colgate-Palmolive (CL)
If you had asked me to describe Colgate-Palmolive (NYSE:CL) stock in one word last year, I would’ve said “boring.” However, CL has been a stellar performer so far in 2024, up over 26% year-to-date after a series of solid earnings beats. In Q2, Colgate posted a 4.9% increase in net sales to $5.06 billion and a 48% surge in GAAP EPS. The company is seeing balanced growth across all six of its divisions and four core product categories.
I believe CL can continue to head higher from here or at least trade sideways, as it has been. While the recent outperformance does leave room for some downside risk, I wouldn’t fret too much if you’re planning to hold this stock for the long haul. Colgate dominates the global toothpaste market with a 41.5% share, and its products tend to be recession-resistant. As CEO Noel Wallace noted, the company is “well positioned to drive top tier TSR” with its strategy of driving consistent, profitable growth.
On top of solid business fundamentals, CL also offers a reliable dividend yielding nearly 2%. That’s a nice bonus on top of the stock’s impressive capital appreciation. With many analysts maintaining bullish ratings even as recession risks rise, Colgate looks like a solid pick for investors seeking recession-proof dividend stocks.
Evergy (EVRG)
Evergy (NASDAQ:EVRG) is an electric utility company serving customers in Kansas and Missouri. The company has posted strong Q2 2024 results, beating revenue estimates by 6.6% and growing EPS to 90 cents compared to 81 cents a year ago.
I believe residential electricity usage is relatively recession-resistant, but Evergy looks particularly well-positioned for long-term growth, too. The company is smack dab in the middle of the U.S., where land is cheap, making it a prime location for booming data center development. Data centers are expected to consume up to 9% of total U.S. electricity by 2030, more than doubling their current share and having facilities in low-cost central states like Kansas and Missouri provides a big competitive advantage.
If the AI hype train keeps chugging along, Evergy could see tremendous upside powering all those energy-hungry machine learning models.
But even without that boost, you get a rock-solid utility paying an attractive 4.4% dividend yield. Analysts are taking notice, too, with Evergy sporting a “Strong Buy” consensus rating.
Consolidated Edison (ED)
I believe Con Edison (NYSE:ED) is another great recession-resistant energy company. As a utility focused on energy delivery, it’s less exposed to risks from low energy prices during a recession. However, it’s worth noting that Con Edison has significant exposure to major commercial cities like New York and experienced a decline during the Dot-Com Recession when tech stocks struggled.
That said, I still think Con Edison is a solid pick. The stock has been trading in the $80 to$100 per share range for a while, avoiding the volatility of tech stocks. Even if a severe recession strikes, Con Edison may dip to the lower end of that range, but I believe it’s a relatively safe investment overall.
You can collect its attractive 3.3% yield while weathering any potential storm.
Analysts have mixed opinions on Con Edison, with some rating it a “Hold” and others a “Sell.” However, the company recently reported solid Q2 2024 earnings, with adjusted earnings of 59 cents per share. Con Edison also reaffirmed its full-year 2024 adjusted earnings guidance range of $5.20 to $5.40 per share.
Clorox (CLX)
Clorox (NYSE:CLX) has faced some challenges recently, including a cyberattack that disrupted operations last year but it continues to claw its way back to normal inventory and service levels.
CLX stock has been on quite the roller coaster ride for a company that sells bleach and trash bags for the past few years. Shares soared to around $240 during the pandemic cleaning frenzy but have since come back down to earth, trading at $143 as of this writing – right around where they were before COVID-19 sent everyone scrambling for disinfectant wipes.
Regardless, Clorox’s business is about as stable and recession-resistant as they come. It’s weathered economic downturns before without getting clobbered. Even after missing sales estimates in its latest quarter, the market didn’t overreact.
Most analysts still have a “Hold” rating on the stock, which currently yields an attractive 3.41%.
California Water Service (CWT)
California Water Service (NYSE:CWT) provides drinking water and wastewater services to over 2 million people in California.
In Q2, Cal Water beat revenue estimates by 13% with a 25.9% year-over-year increase. The stock has since rebounded 10.5% in the past six months, but I think it’s still a bargain considering the renewed population growth in California and the essential nature of what it sells.
Management is also investing $1.6 billion over the next three years to upgrade infrastructure and address PFAS contamination, which analysts believe positions them well for rate base growth and industry consolidation.
With a 2.12% dividend yield and likely continued estimate beats, I see Cal Water as a refreshing opportunity in this overheated market. Sure, it may not be the sexiest stock, but its steady stream of cash flow could float your portfolio in a downturn.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held a LONG position in KMB, CL, CLX and ED stock.