I have chosen six recession-proof stocks to buy as the market boom ends. They pay dividends, have low payout ratios, low price-to-earnings (P/E) multiples, and good growth.
As a result, these stocks have a good chance of surviving the oncoming recession, if, indeed, we aren’t already in one. Investors will stick with stocks that can afford to keep paying their dividends, even if that means that the payout ratio rises. That occurs when earnings fall and the ratio of dividends to earnings rises.
Moreover, with low P/E multiples, these stocks have less potential downside risk than other highly valued stocks. High P/E stocks face the risk of multiple compression along with potentially lower earnings during a recession.
Lastly, the payment of dividends provides a degree of stability for a stock compared to those that don’t pay dividends. This is inherently a value choice by investors as it provides a means for them to get a return of and on their capital. Highly-valued tech stocks that don’t pay dividends can’t provide that return of capital to their investors. That gives them greater downside risk.
Let’s dive in and look at these stocks:
|CCAP||Crescent Capital BDC, Inc.||$15.65|
|FSK||FS KKR Capital Corp.||$19.64|
|MRK||Merck & Co., Inc.||$92.08|
|RTX||Raytheon Technologies Corporation||$93.18|
Recession-Proof Stocks: Hasbro (HAS)
- Market Cap: $11.4 billion
Hasbro, Inc. (NASDAQ:HAS) is a brand-name toy company that is going to sell toys this Christmas, recession or not. In fact, analysts still project that both revenue and earnings will rise this year and next year.
For example, sales are now forecast to rise by 4.8% to $6.96 billion in 2023. Moreover, earnings are seen as moving up 12.1% to $5.86. This puts HAS stock 0n a cheap forward P/E multiple of just 13.9x for 2023.
Moreover, Hasbro pays an annual dividend of $2.80, based on a quarterly rate of 70 cents, which was recently raised from 68 cents. That gives HAS stock a 3.44% dividend yield based on its price on Jun. 30 of $81.35.
In fact, its average yield over the past four years was 2.92%, according to Seeking Alpha. That means that if HAS stock were to rise from its present 3.44% dividend yield to the average 2.92%, it would go up by 17.87% to $95.89. This can be seen by dividing $2.80 by 2.92%.
Another benefit to shareholders is that the company has been buying back shares. This helps increase the dividend per share if the dividend cost is kept at the same level.
The bottom line here is that no one is going to cancel Christmas. Everyone is going to celebrate it and families will be buying toys for their kids, recession or not. That makes Hasbro one of the better recession-proof stocks.
- Market Cap: $193 billion
Broadcom Inc. (NASDAQ:AVGO) designs and develops semiconductor chips and associated software. The company is very profitable and is forecast to produce 8.9% higher earnings at $40.21 per share for the year ending October 2023. That puts it on a forward P/E multiple of just 11.9x.
In other words, analysts do not see any downturn in chip-making companies, recession or not. This aligns with what we know about many industries that have chip shortages now.
In addition, Broadcom pays a dividend of $16.40 per share, which is just 44.4% of its forecast 2022 earnings of $36.91. That shows that the company can easily afford to keep paying this dividend, recession or not. In fact, every year in the past 11 years, Broadcom has consistently raised its dividend.
Moreover, it gives AVGO stock, at $477.84 as of Jun. 30, a dividend yield of 3.43%. This is also slightly higher than its four-year average of 3.2%, according to Seeking Alpha. That implies that the stock could move up from here.
In addition, the company is buying back large amounts of its shares. Last quarter alone it spent $3.29 billion on buybacks. That works out to $13.16 billion annually or 6.82% of its $193 billion market cap. This makes it one of the better recession-proof stocks.
Recession-Proof Stocks: Crescent Capital BDC (CCAP)
- Market Cap: $482.5 million
Crescent Capital BDC (NASDAQ:CCAP) is one of the business development companies (BDCs) that are popular high-yield stocks now. They are regulated investment companies that must pay out 90% of their income.
Crescent Capital is a BDC that invests in the debt of middle-market companies in the U.S. Its present dividend rate is $1.64 annually, based on a regular dividend of 41 cents quarterly. That alone gives the stock a stated yield of 10.5% as of Jun. 30, when the stock was priced at $15.62.
CCAP has also started paying a 5 cent special dividend for the past three quarters. That works out to 46 cents in quarterly dividends in total, or $1.84 annually, if it continues.
Therefore, its real run rate dividend yield now is 11.78% (i.e., $1.84/$15.62) — again, assuming that the extra special 5 cents quarterly dividend continues.
I would not necessarily count on the extra 5 cents continuing if the U.S. is in a recession. Many companies will begin defaulting on their debt obligations. That will make it harder for Crescent Capital to keep up the extra payments. So, investors should probably just count on the $1.64 annual dividend for now.
CCAP stock is also below its net asset value (NAV) which, as of Mar. 31, was $21.18. So, the Jun. 30 price of $15.62, puts it at 73.7% of its NAV. That makes it very valuable as its high dividend yield and low price-to-NAV ratio makes it one of the best recession-proof stocks.
FS KKR Capital Corp. (FSK)
- Market Cap: $5.62 billion
FS KKR Capital Corp. (NYSE:FSK) is another BDC that invests in secured loans and debt securities of middle-market companies. However, it pays a total quarterly dividend with no special or supplemental dividends.
One downside is that FSK stock’s quarterly dividend announcements bounce around depending on that quarter’s profits. For example, last quarter, FSK paid a 68-cent dividend, up from 63 cents in the quarter before that.
That works out to an annual dividend payment of $2.72. At the price on Jun. 30 of $19.80, the stock has a yield of 13.74%. On top of this, FSK has a NAV of $27.33. That puts the stock well below this, at just 72.4% of the NAV.
These factors will make this stock able to withstand an economic downturn.
Recession-Proof Stocks: Merck (MRK)
- Market Cap: $230.55 billion
Merck & Co (NYSE:MRK) is a large pharmaceutical stock with a 2.99% dividend yield. As of Jun. 30, MRK stock is up over 20% YTD.
Moreover, Merck’s prospects are not related to the growth of the economy, whether it is in a recession or not. In fact, analysts forecast that its earnings will grow slightly from $7.40 to $7.43 next year. That puts it on a cheap forward P/E multiple of just 12.4x earnings.
This makes it one of the cheaper recession-proof stocks on this list.
Raytheon Technologies (RTX)
- Market Cap: $142.5 billion
Raytheon Technologies (NYSE:RTX) is a defense industry company whose earnings are not tied to economic growth in the U.S. Moreover, analysts forecast that its earnings next year will grow by 21%. This puts the stock on a recession-proof multiple of 16.8x for next year.
Moreover, its dividend yield is 0.96%, which provides income to investors. Given that analysts forecast it will make $4.77 per share this year, its $2.20 dividend payment is more than secure.
So far this year, RTX is one of the few in positive territory, up 11.6% YTD. There is every likelihood that this positive performance is likely to continue, given that it is one of the best recession-proof stocks on this list.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.