A recession is a terrible thing, but also a thing that is quite normal in the business cycle. These economic downturns help to burn off the excesses that often arise during periods of rapid economic growth.
Still, investors worried about a recession today might wonder where they can invest to protect themselves from such an economic downturn. That's hard to do, but you might want to consider these three companies: NextEra Energy (NEE -0.77%), Enterprise Products Partners (EPD 0.64%), and Black Hills (BKH 1.11%).
Here's a look at each one.
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1. NextEra Energy has growth opportunities
The foundation underpinning NextEra Energy's business is the regulated utility operations it runs in the state of Florida. The Sunshine State has long seen its population grow as people look for better weather and low taxes (Florida does not impose a state income tax). Retirees are a major source of new residents, which is also a positive given the aging of the very large baby boom generation.
In other words, the company's regulated electricity operations are boring, but tilted toward growth. None of these facts is likely to change in a recession.
Atop this foundation NextEra Energy has built one of the world's largest wind and solar power companies. This taps into the growth opportunity from the shift from dirtier energy sources to cleaner ones. Again, that shift, which will require decades of capital investment, isn't likely to end if there's a recession. If you buy NextEra you can collect a reliable and likely recession resilient 3.1% dividend yield.
2. Enterprise Products Partners is a toll taker
Another interesting option is North American midstream giant Enterprise Products Partners. This master limited partnership (MLP) is tied at the hip to dirty energy sources like oil and natural gas. While commodity prices for these fuels can be massively volatile, that won't have a huge impact on Enterprise's business. It owns energy infrastructure, like pipelines, that move oil and natural gas. The company charges fees for the use of its assets, so the price of the commodities it moves really aren't that important to its top- and bottom-lines.
Even when commodity prices sink, which isn't an unreasonable expectation during a recession, demand for energy tends to remain high. And that means the volume of energy passing through Enterprise's pipes is likely to remain strong. The revenue from this toll-taker model has supported 26 consecutive annual distribution increases, which is a testament to the resilience of the business. Now add in a lofty 7% distribution yield and you can see why buying today might make sense even if you are worried about a recession.
3. Black Hills' dividend has stood the test of time
Black Hills is a relatively small regulated natural gas and electric utility. To put some numbers on that, Black Hills' market cap is around $4 billion versus roughly $145 billion for NextEra Energy. And Black Hills' business is, well, fairly boring, as it reliably delivers power to roughly 1.35 million customers in Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming. The big draw here is the stock's attractive 4.5% dividend yield.
That yield is extra attractive when you look at the dividend track record. Black Hills is one of a small number of Dividend King utilities, with more than five decades worth of dividend increases behind it. NextEra's streak is "only" around three decades long.
As noted with Enterprise, recessions don't change the ever increasing need for power in the world. So Black Hills' business is likely to be resilient to economic pullbacks. The long-term growth of its dividend is proof of that and highlights why conservative dividend investors might like to buy this high yielder today.
Three energy options likely to survive a recession
Recessions are terrible things to live through, but history suggests the world will, indeed, live through the next economic downturn. If you want to invest in the energy sector in a way that will help your investments live through a recession in relative stride, focusing on strong dividend payers like NextEra Energy, Enterprise, and Black Hills is a good start. NextEra will likely interest growth investors, Enterprise is a good oil and gas related pick, and Black Hills is appropriate for conservative income lovers.
