As 2025 comes to a close, it will cap off a year of deep economic uncertainty. While new technologies like generative artificial intelligence (AI) have boosted GDP growth from data center spending, regular consumers are still struggling with rising prices and a softening job market. UBS projects that over the near term, there is a 93% chance of a recession.
Generally, economic downturns are bad news for stocks because they mean less spending and slower growth. Companies with particularly weak balance sheets may even declare bankruptcy.
That said, some businesses are built to thrive no matter what happens with the economy. Let's discuss why Dollar General (DG +7.29%) and Realty Income (O +1.03%) fit the bill.
Realty Income
Realty Income is a leading real estate investment trust (REIT) that is popular with retirees because of its large dividend (currently yielding 5.63%), which is paid monthly instead of quarterly. The company maintained its payout through the financial crisis of 2007 and the dot-com bubble collapse in 2001. And its diversified defensive business model could help ensure decades of value creation.
NYSE: O
Key Data Points
As a REIT, Realty Income's operating strategy involves acquiring single-tenant commercial properties and leasing them to high-quality tenants such as dollar stores, auto repair shops, and home improvement stores. While some of these tenants are sensitive to the business cycle, the company manages risk through diversification (no client type makes up more than 11% of total rent) and triple-net leases -- meaning that the tenant is responsible for operating costs like taxes, insurance, and maintenance.
Paradoxically, a recession may actually set up Realty Income for future growth. And the stock enjoyed substantial bull runs after the downturns in 2001 and 2007, likely because of favorable monetary policy.
The real estate industry is particularly susceptible to interest rates because this influences the cost of capital needed to take out loans and acquire new properties. During recessions, the Federal Reserve usually lowers rates to spur expansion in the economy. And this benefits Realty Income's growth potential while making its stock more attractive relative to other income-producing assets, such as Treasury bonds.
Dollar General
Founded in 1939, Dollar General has since grown to become America's largest chain of dollar stores, a type of convenience store designed to attract lower-income consumers with rock-bottom prices and a no-frills experience. The company faces serious challenges from the inflation crisis over the past half-decade (which forced it to raise more of its prices above $1), but it still looks poised to withstand a recession.
A lot of people mistakenly believe that a recession is synonymous with a bad economy. But that's not necessarily true. Recessions are economic contractions that usually lead to a drop or flattening out in consumer prices.
So while Dollar General's business model struggled with inflation over the last five years, it can still thrive during an actual recession by attracting customers from mainstream big-box retailers like Walmart or Target.
Image source: Getty Images.
Dollar General's market niche is unique. It lacks the economies of scale of its larger competitors, but it makes up for this by offering products in extremely small quantities. Although these purchases don't necessarily provide a better value for consumers, in a truly desperate economy, they allow people to spend the bare minimum until conditions improve.
Second-quarter net sales jumped 5.1% year over year to $10.7 billion, while operating profits grew 8.3% to $595 million. While these numbers might not be exciting for growth investors, the company offers exceptional value with a forward price-to-earnings (P/E) multiple of just 16 compared to the S&P 500's average of 22. And it sweetens the deal with a modest dividend yield of 2.16%.
