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3 Top Stocks to Recession-Proof Your Portfolio

By Ryan Downie - Mar 3, 2021 at 8:10AM

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These 3 stocks have stable financials and dividends that should make investors happy whenever the next recession causes a bear market.

If you're worried that a recession will threaten your stock portfolio, then now's a great time to get your ducks in a row. It would not be wise to make drastic changes to your allocation based on fear, but it's definitely smart to ensure that your holdings are perfectly aligned with your risk tolerance. It might be smart to rebalance a bit and move some higher-risk positions into recession-proof stocks that have more stable operations and dividends. These three stocks might be among your favorites in the next recession.

1. J.M. Smucker

J.M. Smucker (SJM 3.25%) owns a number of famous food and consumer goods brands, including Folgers, Jif, and Milk-Bone. Growth investors might be horrified by the prospect of owning a company like this because there's just about no chance that it will expand rapidly. It has averaged around a 2% rate of sales growth over the past three years, and the outlook is mostly flat looking at the short to medium term. There's nothing terribly exciting about J.M. Smucker, but there's a great opportunity for stability through difficult economic times.

Piggy bank protected from rain by an umbrella

Image source: Getty Images.

The company estimates that 90% of American households have one of its products in their refrigerator or pantry at any given time. People might pull back a bit during a recession, but they are still going to buy groceries. Companies like J.M. Smucker are in a great spot to continue moving stably along, even when other businesses are challenged.

The stock's performance reflects this. A low beta of 0.29 over the past five years indicates that the company's shares don't swing nearly as wildly as the rest of the market. A reasonable 13.5 forward P/E ratio limits the downside risk, as long as the company can maintain its current profit levels. Importantly, shareholders enjoy a 3.1% dividend yield to deliver nice returns even if the stock is struggling in bear market.

2. Duke Energy

Duke Energy (DUK 0.23%) is a utility company with 7.9 million retail electric customers and 1.6 million natural gas customers in several states around the Southeast and Great Lakes regions. Utilities are widely considered a recession-proof sector. Electricity and heat are among the last things people will stop consuming during tough times, even if they pull back a bit. Utilities have predictable cash flows, which allows them to pass a substantial amount of profits on to shareholders.

Duke's 2020 full-year adjusted earnings increased slightly from the prior year. The company is forecasting 5% to 7% earnings-per-share (EPS) growth through 2025, and there's reason to trust this outlook. Shareholders are taking a healthy 4.4% dividend yield. The annualized current dividend is $3.86 per share, which is 74% of the forecast earnings next year. That's fairly high, but it should be sustainable for a business like this with stable cash flows. Duke shareholders should expect the stock to hold up better through recessions and produce decent returns, regardless of market conditions.

3. LTC Properties

LTC Properties (LTC 0.18%) is a real estate investiment trust (REIT) that owns 184 assisted living and skilled nursing facilities in dozens of states across the U.S. Demand for the services rendered at these facilities is dictated primarily by demographics, rather than economic conditions. Seniors who require special attention will still need care during recessions. As a result, cash flows for LTC Properties are relatively stable and predictable. It collected 98% of contractually obligated rent and lease payments in the fourth quarter of 2020.

LTC Properties pays a 5.57% dividend yield, which is more than three times higher than the S&P 500 average. The REIT pays a monthly dividend that is currently $0.19 per share, which was covered by the $2.41 funds from operations (FFO) per share reported for the full year 2020. Accelerated revenue growth is forecast for 2021, along with collection of deferred revenue, as the complications from the pandemic are overcome.


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Stocks Mentioned

The J. M. Smucker Company Stock Quote
The J. M. Smucker Company
$131.34 (3.25%) $4.13
Duke Energy Corporation Stock Quote
Duke Energy Corporation
$105.94 (0.23%) $0.24
LTC Properties, Inc. Stock Quote
LTC Properties, Inc.
$38.76 (0.18%) $0.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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