Rising COVID-19 infection rates, high unemployment, struggling small businesses, ongoing trade wars, and civil unrest all have some investors fearing the current recession will continue into 2021. A recession and stock market downturn are especially problematic for early retirees or people approaching retirement, because assets that fall in the near future may never have time to recover before being liquidated to support a retirement lifestyle. That said, it is extremely difficult to time recessions correctly, and selling out of equity positions could incur several years of opportunity cost if the market resumes its climb. 

Considering these uncertain and volatile conditions, investors should look for stocks that pay a healthy dividend while operating a stable business that is proven to navigate recessions. The following three stocks would deliver returns even in a down market, thus reducing the likelihood that investors will be forced to sell a down position. Moreover, non-cyclical stocks such as these three tend to hold up better during recessions because their operational fundamentals are more stable. 

Overlaid images with coins, stock charts, and downward pointing arrows in red shades.

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1. Duke Energy: A leader in the utilities sector

Utilities are generally considered non-cyclical businesses. Consumer behaviors change when employment and income become uncertain, but people will continue to demand basic goods and services for the most part. As such, revenues from companies managing electricity, natural gas, and water are fairly steady. 

Duke Energy (NYSE:DUK) owns and operates a utility infrastructure with 7.7 million retail energy customers and 1.6 million natural gas customers in six states. The stock outperformed the S&P 500 meaningfully in the 2008-09 Great Recession. It also sports a beta of only 0.24 over the past five years, meaning its price movement has very low correlation to movement in the broader market and it is much less volatile, both of which are encouraging characteristics for risk-averse investors.

Stock chart comparing performance of Duke Energy and the SPDR S&P 500 ETF in from July 2008 to July 2010.

Data and image source: YCharts

Duke Energy's 4.05% forward dividend yield offers investors substantial cash regardless of share price performance. The company's top and bottom lines have grown slowly in recent years, but management prioritizes stability over growth. With a manageable 1.49 debt-to-equity ratio and a sufficient 1.86 interest rate coverage ratio, Duke maintains a good financial health profile relative to some other utility companies.

2. Costco: A basic goods retailer that has excelled in prior recessions

Staple consumer goods tend to perform well during recessions, and some discount stores even experience growth as price-conscious consumers begin substituting toward value brands and retailers. Costco (NASDAQ:COST) is a warehouse discount retailer with a membership model that has performed well in prior recessions while offering some upside in good times. Costco's sales only declined by 1.5% in fiscal 2009, and the company was able to limit its layoffs. Importantly, the chain maintained an 87% membership renewal rate through the bottom of that difficult recession, indicating high customer satisfaction and loyalty. 

Costco shares currently offer a fairly meager dividend yield below 1%, but the stock offers an uncommon combination of stability and growth. Revenue has grown at a 7.5% compounding annual rate over the past five years, while earnings per share have grown more than 10% annually. Risk-averse investors may cringe at paying 34.2 forward price-to-earnings for a diversified consumer goods chain, but it is hard to envision a scenario that dethrones Costco even in the medium term. The company has thrived through economic crisis and the rapid rise of e-commerce.

3. AbbVie: A drug company with a stable portfolio and strong dividend

Healthcare stocks are often considered recession-proof, though this designation requires some qualifiers. Economic uncertainty definitely causes the delay or abandonment of elective medical procedures, regular trips to the doctor, and dental care. This causes some industries within the healthcare sector to remain cyclical. However, there are segments that are resistant to recessions, such as non-elective treatments or care that is heavily subsidized by insurance companies in the U.S. and government payers around the world. 

Branded drugmakers' financial results are determined more so by their drug portfolio and pipeline than by prevailing economic conditions. AbbVie (NYSE:ABBV) owns several massive-selling pharmaceutical drugs, including Humira, Botox, Venclexta, and Imbruvica. The company's heavy sales concentration in a small number of drugs is a concern, especially with Humira sales declining due to generic competition. Despite this, the company cites growth potential in its cancer drug portfolio, as well as high upside for pharmaceuticals like Skyrizi for plaque psoriasis, Rinvoq for rheumatoid arthritis, and Ubrelvy for migraine pain.

The 5.47% dividend yield is very attractive and shares trade at a reasonable 7.8 times price-to-forward-earnings ratio, even with nearly 10% forward earnings growth forecast by analysts. AbbVie is an interesting pharma giant that should continue posting strong results, even through a recession.