If You Think A Recession Is Coming, Buy These 3 Dividend Stocks
Several American stock exchanges have become the latest victims of the COVID-19 coronavirus outbreak this week. the Dow Jones Industrial Averagethe S&P500and the NASDAQ all officially entered correction territory on Thursday morning, each down more than 10% in recent days as concerns about the spread of the disease took center stage. A patient in California contracted the virus without traveling to an infected area or having been in contact with anyone known to have the disease, raising fears that the virus could begin to spread in the United States. Some worry that concerns about the virus could ultimately drive the US economy into recession.
While it can be disconcerting for investors to see their portfolios flooded with red ink, it’s important to remember that these same conditions are creating exciting opportunities and setting the stage for impressive recoveries once the outbreak is over.
With that in mind, let’s take a look at three companies that are likely to continue to do well even as conditions continue to deteriorate: McDonald’s (MCD -0.13% ), walmart (WMT -0.64% )and Hasbro ( AT -1.11% ).
1. McDonald’s: gourmet returns
Even a solid stock like McDonald’s hasn’t been immune to the recent downturn, falling around 5% in the past two weeks alone. It may not have bottomed, but now may be the perfect time to buy the burger supplier, which has thrived in previous market downturns. The combination of its ubiquitous brand and affordable menu results in an unbeatable combination in times of economic uncertainty.
In 2008, at the height of the Great Recession, McDonald’s worldwide comparable sales increased 6.9%. Revenue increased 3% year over year, pushing earnings per share (EPS) up 15%. McDonald’s stock also outperformed that year, gaining more than 5%, even as the S&P 500 fell more than 38%.
McDonald’s continued to reward shareholders, increasing its dividend payout by more than 9% that year, having increased its dividend every year since 1976. This streak has now continued for 43 years, with its last increase of 8% at to come. in December 2019. The dividend is currently yielding around 2.4%, and with a payout ratio of just 42%, McDonald’s has plenty of room to continue its unbroken run of increases.
Maybe it’s time to eat at McDonald’s.
2. Walmart: Discount Shopping
Walmart is another blue chip stocks caught up in the recent market turmoil. The stock has fallen around 5% in recent days and is down around 7% from its December highs.
Even in an economic downturn, consumers still need the essentials, even though they tend to seek out deeper discounts. No other retailer is better positioned to appeal to this desire for savings than Walmart. Not only is the company the largest retailer in the world, but it remains the go-to destination as a discount store.
The pull is even stronger for consumers during downturns and recessions, as evidenced by the company’s performance in 2008. Even though that recession peaked, Walmart continued to weather the downturn, increasing sales by 8.6% year over year, while earnings per share increased. 8.2%.
Even as many retailers cut their dividends, Walmart not only continued to pay out its dividend, but actually increased the payout by 31% over 2007, a continuing streak of increases dating back to 1974. It continues today , while Walmart increased its payout by 2% at the start of 2019, and last week announced another 2% increase for 2020.
The dividend currently pays around 2% and Walmart only uses 27% of its profits to fund the payout, meaning these annual increases are likely to continue indefinitely.
Now might be a good time to make a small deal to buy Walmart stock.
3. Hasbro: Too sick to play
Hasbro is certainly the riskiest among these recommendations, but also represents the greatest potential for return. The title was already selling at a discount due to the trade war between the United States and China. Uncertainty caused by recurring pricing has caused retailers to delay or even cancel orders during the important holiday season. Now that the countries have reached the first phase of a trade agreement, these problems could finally be behind them.
Unfortunately, Hasbro’s supply chain in China – where many of its toys are produced – is in the face of the disruptions caused by COVID-19. Those concerns, added to its recent troubles, have sent Hasbro stock down 20% in the past week alone, and it’s down 36% since July. That puts the stock in bargain territory, with a price-earnings ratio of 20, its lowest level in more than two years.
There are more reasons to love Hasbro stock now. During the Great Recession, the company – perhaps counter-intuitively – continued to thrive, increasing revenue for the fourth consecutive year, while its profits increased for the eighth consecutive year. Hasbro attributed its growth during the period to the strength of its partner brands, including star wars and Marvel, as well as its franchise brands Nerf and Transformers, among others. The company rewarded investors that year by increasing its dividend by 25%.
Speaking of its dividend, Hasbro is currently returning 3.3%, while using around 65% of its profits to fund the payout, again its lowest level since the start of 2018. The company has also increased its dividend each year since 2004.
This deal won’t last long, so investors should buy Hasbro while it’s still in business. player.
This too should pass
The bullish outlook on these stocks does not mean there will be no challenges, as every company has exposure and operations in China. McDonald’s has closed hundreds of its restaurants in the Middle Kingdom to help curb the outbreak. Walmart has reduced hours of operation at hundreds of locations nationwide. More than 85% of Hasbro toys sold in the United States are made in China, along with 67% of its global supply.
That said, this outbreak – like many before it – will run its course. Even if this leads to a recession, investors who keep a cool head and do good business when others were too busy running for cover will be rewarded in the long run.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.