Even as the world braces itself for a long, deep recession and an unprecedented level of, US stocks, measured by, have rallied for two consecutive months following a dip in February and March.
But despite this optimism among investors, it is far from sunny. COVID-19 continues to kill thousands of people worldwide every day, there is still no vaccine, and mandatory social distance rules, along with closed business activities that may or may not be reopened, are contributing to what is expected to be a severe recession.
In this very uncertain environment, where market risks are increasing, it makes sense to add security to someone's investment portfolio by buying high-quality large-cap, low-risk stocks that tend to outperform during the downward phase of the market cycle.
With this in mind, we have selected the following three stocks. They should continue to generate revenue even during an economic recession.
1. McDonald's
On the surface, it doesn't seem like a good time to take a good look at the largest fast food chain in the world, McDonald's (NYSE :). Many consumers are still locked and the economy is still standing still. But history teaches us that MCD is a good recession-resistant stock.
The fast food chain was among the best performers during the Great Recession of 2008 and 2009 and seems ready to repeat that feat. According to research bureau Baird:
"MCD appears to have sufficient liquidity to support its franchisees in resolving short-term sales and cash flow issues, and history suggests that the McDonald & # 39; s brand has recession-resistant features that should be above average in 2H20 / 2021. "
Another important factor that makes McDonald & # 39; s a good long-term choice is the stability of its dividends. The company has increased its benefits every year since 1976, when it first began paying dividends. It currently pays a quarterly dividend of $ 1.25 per share, which translates to an annual dividend yield of 2.65%.
After some recovery in the past two months, the Chicago-based company's share has still fallen by more than 14% from its pre-pandemic peak. It closed at $ 186.32 on Friday. This weakness is a good entry point for long-term investors waiting on the sidelines.
2. Walmart
One way to position your portfolio to perform better in times of market distress is to include companies that produce or sell products and services that are crucial to our daily lives. Major retail companies such as Walmart (NYSE 🙂 fit this profile well.
This built-in protection makes the world's largest physical grocery store a great recession-resistant stock. With a beta of only 0.43 (riskier stocks have a higher beta, closer to or above 1), Walmart is one of the safest megacap stocks available.
After reaching a record high of about $ 133 in mid-April, Walmart has lost some steam in recent weeks. It closed on Friday at $ 124.06, up about 4% for the year.
The growing success of the hybrid shopping model – where the vast shopping network and online presence come together to create a superior shopping experience for customers – is evident from the company.
Walmart & # 39; s cast-iron dividend is an added benefit. It makes this stock a good choice to own due to the thick and thin activity of the market. The company has an impressive track record when it comes to returning cash to its investors.
At the beginning of this year, Walmart announced a 4% increase in dividend, increasing its distribution to $ 0.54 per share on a quarterly basis, for a return of 1.75%. With this increase, Walmart has increased the payout every year for the past 46 years. Regularly increased payouts provide good hedging and protect the value of your investment from erosion from inflationary pressures.
3. Microsoft
Technologically, Microsoft (NASDAQ 🙂 is a highly recession-resistant stock to consider. Unlike some of its industry peers, Microsoft is in a much better position to withstand the deteriorating economic outlook, as evidenced by the current shelter-in-place trend.
The global blockage has forced millions of people to work from home, increasing demand for the technology giant's offerings, including cloud computing and gaming.
"As COVID-19 affects every aspect of our work and life, we have seen two years of digital transformation within two months," Microsoft CEO Satya Nadella told analysts during the company's conference call in April.
The health crisis has spurred demand for Microsoft services, such as the workplace collaboration software suite, Teams, which includes video conferencing and messaging features. It now has 75 million daily active users, more than double the number it had in early March.
In addition, during the pandemic, Microsoft also pays a very strong dividend. Microsoft has an excellent track record in this particular area. Since 2004, when it first started paying out dividends, the company's payout has increased by more than 400%.
Continued dividend growth is supported by a low payout ratio of 32% and strong underlying companies. Currently, Microsoft's annual dividend yields 1.12%, which translates into a quarterly payment of $ 0.51 per share.
During market declines, companies that regularly pay dividends are generally in a much better position to withstand sales pressure than companies that don't. Dividend-paying stocks are also less in bear markets, as investors are not so quick to divest the accrued interest-rate assets they offer.
