The Dow Jones hit a milestone this week, closing above 30,000 points for the first time. Fueling the surging stock market is optimism that vaccines will soon end the COVID-19 pandemic.
However, while recent data from a trio of candidates suggests that these vaccines are more than 90% effective at preventing the virus, rolling them out to everyone in the world is a momentous task. That means there's a risk that the economy might experience some more turbulence in the coming months, especially with case counts surging around the world. And that's why investors worried about another recession might want to start preparing now for that possibility. Two dividend stocks that stand out for their recession-proof characteristics are infrastructure operator Brookfield Infrastructure (BIP -1.33%) (BIPC -0.47%) and utility NextEra Energy (NEE 0.51%).
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Doing what it does best during a recession
Brookfield Infrastructure built its business to thrive during times of economic turmoil. The company owns a portfolio of mission-critical infrastructure assets like utilities, pipelines, telecom towers, data centers, ports, and railroads. These assets generate relatively steady income backed by long-term contracts and regulated rates. This durability was on full display in 2020 as Brookfield is on track to grow its cash flow despite all the economic headwinds. As this year's results demonstrate, Brookfield should be able to handle another recession with ease.
The company complements its stable cash flow with a top-notch balance sheet. It boasts an investment-grade credit rating with lots of liquidity (cash and available credit). That gives it the financial flexibility to capture investment opportunities during periods of market turmoil. For example, earlier this year, it bought shares of several infrastructure companies during the initial market sell-off, which enabled it to profit from the eventual rebound. Brookfield also took advantage of the energy market turmoil to buy a stake in an liquefied natural gas export company. Those actions show that the company can move quickly to capture value-enhancing opportunities during a recession.
Brookfield also demonstrated that it has the financial fortitude to continue paying its dividend, which currently yields 3.8%. Add it all up, it's an ideal stock for investors seeking a recession-resistant dividend.
Plenty of power to keep paying dividends
Utilities like NextEra Energy tend to be relatively recession-resistant. While economic-related business slowdowns and closures impact electricity demand, it's usually not enough to make a significant difference. That was evident this year as the company's two Florida-based utilities generated steady results despite all the economic turmoil. Add to that its fast-growing renewable energy business, and 2020 will be another year of above-average earnings and dividend growth for the company.
NextEra's stable earnings profile -- which, like Brookfield, benefits from long-term contracts and regulated rates -- gives it lots of visibility into its future earnings. Given that and the success of its renewable-energy development program, it recently boosted its outlook for next year and extended its forecast through 2023. When combined with a top-tier financial profile, that enhanced forecast gives it plenty of power to continue growing its 1.9%-yielding dividend even if the economy hits some turbulence in the coming year.
Highly durable dividends
Brookfield Infrastructure and NextEra Energy generate very stable cash flow. On top of that, both boast strong balance sheets. Those factors act as a fortress to protect their dividends during times of economic turmoil. They're outstanding stocks for investors to buy if they're looking for some durable income in case there's another recession.
