Jun 20, 2022
When the Fed announced the largest interest rate hike since 1994, the market did not take the news well.
On Thursday, the day after the announcement, the S&P 500 tumbled 3.2%. Year-to-date, the benchmark index has plunged over 23%.
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But a stock market downturn isn’t the only thing to worry about, as Wells Fargo now sees the U.S. economy slipping into a mild recession in mid 2023.
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“In our view, the recession will be more or less equivalent in magnitude and duration to the downturn of 1990-1991. That recession lasted for two quarters with a peak-to-trough decline in real GDP of 1.4%,” the bank’s chief economist Jay Bryson wrote in a note on Wednesday.
The good news? Wells Fargo recently unveiled a portfolio of recession-resistant stocks — here’s a look at three to help you play defense.
Colgate-Palmolive (CL)
It’s easy to see why Colgate-Palmolive belongs to a recession-resistant portfolio.
The company is deeply entrenched in its operating markets, including oral care, personal care, pet nutrition and home care.
Notably, its leading brand Colgate has by far the largest share in the toothpaste market worldwide. And thanks to brands like Softsoap and Palmolive, the company is also a dominant player in the liquid soap market.
No one is going to stop buying soap or toothpaste in tough times. That simple truth has led to a long and consistent track record of returning cash to investors.
The company has increased its payout for 60 consecutive years.
Business is still growing: In Q1, organic sales at Colgate-Palmolive increased 4% year-over-year.
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Paying quarterly dividends of 47 cents per share, CL stock offers an annual yield of 2.5%.
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WM (WM)
Formerly known as Waste Management, WM brands itself the largest comprehensive waste management environmental solutions provider in North America. It says it provides collection, recycling and disposal services to more than 20 million residential, commercial, industrial and municipal customers.
Waste management is not an exciting business, but it is an essential one: Whether the economy is booming or in a recession, people still need someone to come and collect their garbage.
The company was founded in 1968 and is still cleaning up today.
In Q1, WM’s revenue grew 13% year over year to $4.66 billion. Adjusted earnings per share came in at $1.29 for the quarter, up 22% from the year-ago period.
WM currently pays quarterly dividends of 65 cents per share — 13% higher compared to what it was paying a year ago. That makes 2022 the 19th consecutive year that the company has raised its payout.
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The stock offers an annual yield of 1.9%.
Johnson & Johnson (JNJ)
With established positions in consumer health, pharmaceuticals and the medical devices markets, health-care giant Johnson & Johnson has delivered regular returns to investors throughout economic cycles.
Many of the company’s consumer health brands — such as Tylenol, Band-Aid and Listerine — are so ubiquitous they’re used as shorthand for their entire product category. In total, JNJ has 29 products each capable of generating over $1 billion in annual sales.
Not only does Johnson & Johnson post recurring annual profits, but it also grows them consistently: Over the past 20 years, Johnson & Johnson’s adjusted earnings have increased at an average annual rate of 8%.
The stock has been trending up for decades. And it is demonstrating its resilience again in 2022: While the broad market has entered bear territory, JNJ is down just 1.2% year to date.
JNJ also announced its 60th consecutive annual dividend increase in April and now yields 2.7%.
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Jing is an investment reporter for Moneywise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
