There are still a lot of unknowns about whether 2023 will be accompanied by a recession. Inflation is finally easing from the decades-high rate we saw in 2022, but interest rates and a higher cost of living are weighing on the economy. Economic spending has slowed, and many businesses are preparing for a tough year.
Despite the gloom-and-doom economic outlook many experts have, I can rest easy knowing my portfolio has exposure to recession-resilient stocks Agree Realty (ADC 0.60%), Iron Mountain (IRM 1.00%), and American Tower (AMT 0.58%).
These three dividend stocks can help insulate my portfolio and pay me reliable dividend income no matter where the economy is headed. Here's a closer look at each company and why I'll be thankful I own in them in 2023.
1. Agree Realty: Investing safety with long-term net leases
Agree Realty is a retail-focused net lease real estate investment trust (REIT). With contracts averaging seven to 10 years (or more), net leases are some of the most reliable leases in the real estate industry. They work well for REITs because they pass most financial responsibilities for the property on to the tenants while creating consistently growing income for the REIT thanks, in part, to built-in rent escalators.
At the start of 2023, the REIT owned just over 1,800 properties in 48 states across the U.S. Its portfolio is leased to primarily institutional tenants like Home Depot, Target, Costco, and Walmart, along with many others in a diverse mix of industries. The company has a long history of raising dividends while paying an attractive dividend yield of 3.5%.
This particular retail REIT runs a recession-resilient operation because it's selective about the properties it owns and leases, choosing class-A properties in high-traffic metro areas. This helps improve tenant retention while giving its operators good foot traffic and exposure. It also leases to companies with healthy credit positions, which further reduces its risk of default in a down economy. Plus, Agree Realty has an ironclad financial profile.
The REIT has low debt ratios with heaps of cash on hand, which can help it weather any downtimes that may come. It's also been expanding rapidly. In 2022, it spent just under $1.6 billion on new acquisitions, further insulating and diversifying its holdings in the event of a downturn. In addition, Agree Realty has a growing portfolio of ground leases, another super-secure lease structure within the real estate industry.
2. Iron Mountain: A durable business in all things storage
Iron Mountain is one of the few stocks that's actually produced a positive return over the last year. This specialized REIT is up 16% since last year, while the broader market is down 22%. This impressive growth is thanks to the reliable nature of its business.
Iron Mountain helps customers safely store and organize physical assets like documents, art, and collectibles in warehouses across the U.S., in addition to digital storage through its data facilities. Storage is a somewhat boring industry on the surface, but it's a service that is widely needed. Attorneys, banks and lending institutions, medical providers, insurance companies, online software, and education companies along with others are required to store physical and digital assets securely.
Some companies do this in-house, but more often than not it's more cost-effective and secure to lease this task to a company like Iron Mountain. As of third-quarter 2022, Iron Mountain served over 225,000 customers across the globe. The REIT had a strong year thanks to its growing portfolio of data center facilities.
Its revenue, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), and its funds from operations (FFO) -- a key metric for REITs that illustrates profitability -- have grown notably year over year. Storage needs won't subside dramatically in the event of a recession, as its clients will still need a way to safely store their assets. Today the company pays around a 4.8% dividend yield, which is nearly three times that of the S&P 500.
3. American Tower: This necessity-based business should keep growing
American Tower is a communications and infrastructure REIT. The company primarily owns and leases cellphone communications towers and antennas worldwide, but it recently branched into the data center space to further diversify its income and holdings. As of the third quarter of 2022, the company had ownership of or interest in around 238,000 communications sites and 28 data center facilities.
Wireless provider mergers in 2020 put a lot of pressure on American Tower's revenue growth in the U.S. and Canada this past year. Investors concerned over the situation sent the stock sinking. However, its international markets are growing at record speed and more than making up for its North American losses. Its tenant billings grew by 2.6% year over year in Q3 2022, which is an impressive amount given the size of the company.
Its better-than-expected earnings from the most recent quarter prompted the company to raise its guidance for EBITDA and revenue for the full year. It should be able to continue delivering healthy growth in the coming years, even in a recessionary period. It has the continued roll-out of 5G technology to boost its earnings, but people don't simply stop needing to communicate during a recession.
It provides a necessity-based service that has multiple avenues for growing and adopting new technologies like 5G. It also has ample coverage for its debt obligations and dividends, giving it plenty of buffer room to ride out market turbulence while paying an attractive 2.6% yield.
