5 Safe Dividend Stocks for a Shaky Economy

Do you remember 2008? Wall Street is going crazy, we find out we're in the midst of a recession, and the Federal Reserve is forced to lower interest rates to practically zero and pump money into the economy alongside fiscal stimulus to avoid total economic doomsday.

Nearly every pundit frets that zero percent interest and all that money printing would be hugely inflationary. Many announce that the Fed's "panic actions" would cause "Zimbabwe-style hyperinflation." Peter Schiff -- by no means alone but among the most prominent of inflation-panic-mongers -- exclaims:

[The U.S. Dollar] is on the verge of collapse. People who don't get out [of it] are going to be completely broke. That is obvious to me that that's what's going to happen.... This is hyperinflation, this is Zimbabwe, this is the identical monetary policy that the Weimar Republic did, and we're gonna have the same result.

Take a deep breath. Three years later, none of that has happened. In fact, the opposite is happening. And that unusual fact can have enormous implications for your investments. Here's what's going on and five stocks to help keep your portfolio safe in this bizarre environment.

What's going on
Despite volatile prices in some high-profile commodities, inflation has been relatively tame. The red line below is the "core" inflation rate that excludes food and energy. The blue line includes them:

So why haven't we seen a lot of inflation? Part of it is because the huge decline in housing prices pushes down consumer price averages. A lot of it also has to do with the fact that money isn't being spent. The Fed could print a gazillion dollars, but if it got buried it in the ground, no one would notice.

Households, banks, and businesses are basically burying their cash today. Here's the rate at which money is turning over in the economy:

In the aftermath of a massive credit bubble, households and businesses are hoarding cash and repaying debt rather than spending. That's what's holding back the recovery. It's also a hugely deflationary force that ordinary inflationary measures -- such as low interest rates and a juiced money supply -- have to contend with just to keep the economy from sinking into a Great Depression-like morass.

Who cares?
A slow-growth, low-inflation economy can affect your portfolio in different ways. But here are four characteristics that are shared by companies built for safety in these shaky times:

  • Defensive industries: Companies that sell necessities tend to have more stable sales when customers are cutting back.
  • Low debt burden: Low inflation is great for creditors but painful for debtors because their debt is more expensive than it would be otherwise. I've written columns in the past explaining why specific creditors like Annaly Capital (NYSE: NLY  ) and Chimera (NYSE: CIM  ) make sense. Today, we'll consider the other side of the coin -- companies with limited debt or access to cheap credit.
  • Increasing sales: It's a good sign if a company is able to increase sales despite a slow economy.
  • Healthy dividends: Periods of low inflation and low interest rates leave many investors scrambling for income, which makes dividends more attractive. In fact, interest rates are so low right now that the S&P 500 actually yields as much as 10-year U.S. Treasury bonds.

Only a handful of companies meet these criteria. Here are five of the strongest:



Interest / Operating Income

1-Year Revenue Growth

Dividend Yield

Sysco (NYSE: SYY  ) Food distribution 6% 6% 4.0%
Johnson & Johnson (NYSE: JNJ  ) Medical devices 3% 1% 3.6%
Kimberly-Clark (NYSE: KMB  ) Personal products 10% 4% 4.0%
AT&T (NYSE: T  ) Diversified telecommunications 16% 2% 6.0%
PepsiCo (NYSE: PEP  ) Soft drinks and snack food 10% 29% 3.3%

Source: Capital IQ, a division of Standard & Poor's.

Sysco is the undisputed king of food distribution -- a necessity if there ever was one. Health-care spending isn't something people choose to skimp on, and Johnson & Johnson doesn't have the same upcoming patent problems as many of the top pharmas. Kimberly-Clark sells a diversified batch of low-priced personal care products. AT&T operates in a rather steady, profitable, and consolidated industry. PepsiCo is a duopolist that enjoys huge, reliable margins selling sugar water at a large markup.

Each of these names operates in a defensive industry, has a relatively low interest burden on its debt, enjoys increasing sales, and pays a meaningful dividend. They're the sort of names income-seeking investors may want to consider in this shaky economy.

If you're looking for additional help finding outstanding dividend payers, check out The Motley Fool's special report "13 High-Yielding Stocks to Buy Today." You can download all of the research for free by clicking here.

Ilan Moscovitz doesn't own any shares in the companies mentioned above. The Motley Fool owns shares of Chimera Investment, PepsiCo, Johnson & Johnson, and Annaly Capital Management. Motley Fool newsletter services have recommended buying shares of AT&T, Kimberly-Clark, PepsiCo, Johnson & Johnson, and Sysco; and creating diagonal call positions in PepsiCo and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (9) | Recommend This Article (55)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 30, 2011, at 2:50 PM, SDB15 wrote:

    Disagree with SYY- Don't they distribute to restaurants? In my experience, eating out is the first thing you cut when you're trying to cut your spending.

  • Report this Comment On September 30, 2011, at 6:36 PM, Chontichajim wrote:

    I have KMB and PEP and just don't hold JNJ because I have other healt care companies. AT&T (T) looks like it is still valued as if the T-Mobile merger was in the bag, otherwise it should be below 25 due to all the obsolete landline copper they own which inflates their assets.

  • Report this Comment On October 01, 2011, at 10:37 AM, Gorm wrote:

    I can see where a case could be made for strong industry essential, dividend paying companies BUT NOT in the USD.

    This group is akin to changing rooms on the Titanic, unless each is reliant for a significant percentage of sales outside the ailing 3 and the business is denominated in a strong currency.

    The 3 major FIAT currencies (USD, Yen and Euro) are all ailing, saddled with debt, unsustainable liabilities, aging populations, inept leadership focused on a politically acceptable short term patches, not SOLVING CORE problems. FIAT means the currency is NO stronger, safer than the market's PERCEPTION.

    As the USD will probably rise (best of the worst) please suggest strong, dividend paying equities in STRONG currencies managed by fiscally responsible leadership. THEN you'll REALLY have Safe Dividend Stocks in a Shaky Economy.



  • Report this Comment On October 01, 2011, at 10:52 PM, mikecart1 wrote:

    I think more people are eating out at fast food places because they are too lazy or dumb to cook their own food. That is why places like MCD have lines around the place and some times both lines are full. I rarely eat out. I go to the grocery store like 3-4 times a week. I easily drop 5 G's yearly in my local grocery and only wish it was publicly traded lol!

  • Report this Comment On October 03, 2011, at 10:10 AM, midnightmoney wrote:

    restaurants are swamped where I live!

  • Report this Comment On October 03, 2011, at 10:19 AM, pondee619 wrote:

    If households "are basically burying their cash today" what is the current US personal savings rate? Or, how much has US personal credit card debt decreased in the past year or so? "households and businesses are hoarding cash and repaying debt rather than spending"

  • Report this Comment On October 03, 2011, at 11:53 AM, ajner wrote:

    The US personal savings rate has jumped from about 1% in 2005 to 4.5% in August 2011, hitting a high of 8% in 2008.

    US household debt has fallen from $13.9T in 2008 to $13.3T today.

    That sounds to me like "burying your cash". If you think paying off debt isn't a form of savings you are not thinking about the ROI that comes from paying down high interest debts. Can you find another place in the market where you can get a guaranteed return between 10%-23% per year? If you can't beat the return on paying down credit card debt, you shouldn't be investing your money anywhere else, until that debt is paid off.

  • Report this Comment On October 03, 2011, at 3:42 PM, selfdestruct2 wrote:

    What about P&G ?

  • Report this Comment On October 07, 2011, at 6:49 PM, coaster1562 wrote:

    When things started to go bad in the market i started to look at Div.paying stocks the one i liked the most was ED pays nice Div. and has gone up for me and not loosing customers any time soon i also have JNJ,SO,MO,NFG,LLY and NVE just some for you to look at

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