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Isn’t it amazing how quickly the mainstream media talk has turned from green shoots and recoveries to double-dip recessions and a whole laundry list of new economic worries?
The whimsical nature of the news aside, there certainly are plenty of reasons for concern as some of my colleagues have been pointing out in their recent Money and Markets columns:
Global shipping is grinding to a halt … consumers are hunkering down again … manufacturing measures are indicating a new slump in activity … and even China’s red-hot economy is now a bit less robust according to Beijing!
In short, now is the perfect time to revisit the areas of the stock market that traditionally hold up best when recessions strike. These are the very same areas that I’ve been emphasizing all along, even during the manic rally, and the very same groups of stocks that you should look at right now as storm clouds roll back over the economic landscape.
Before I get to the specific sectors and industries, however, I first want to note that I suggest sticking only to stocks that pay dividends at this point.
Reason: By their nature, income-producing stocks are a reliable way to weather all types of market hurdles and get non-refundable returns along the way.
Better yet, they tend to hold up much better than non-dividend-paying stocks … no matter what sector or industry you look at.
In 2002, for example, non-dividend stocks in the S&P 500 lost 30 percent while dividend-payers lost only 11 percent … and even during the height of the financial crisis in 2008, dividend payers outperformed by a full six percentage points.
Things Get Even Better When You Focus on The
Right Dividend Stocks in Certain Parts of the Market
Many of the very same companies that pay the biggest dividends also provide products that people buy even when times are tough. Examples? Pharmaceuticals, electricity, and food.
And according to data from Standard & Poor’s, these are precisely the groups that have outperformed in past recessions.
Overall, the S&P 500 has lost an average of 21 percent during past recessions (excluding the latest one).
Meanwhile:
The average utility stock lost 15 percent and beat the market in 9 out of ten past recessions …
The average health care stock posted a 7.3 percent decline and outperformed the market in 80 percent of the recessions, and …
The average consumer staples stock lost just 2.4 percent, beating the market 90 percent of the time.
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Yes, even the best-performing sector posted a loss … but if we get even more specific we can find pockets of companies that tend to gain ground even during economic slumps.
For example …
Alcoholic beverage makers not only beat the market in 80 percent of recessions prior to this one, they actually rose an average of 6 percent …
Household products manufacturers posted a gain of 1.8 percent and outperformed in every single instance, and …
And tobacco companies rose 9.6 percent and beat the market every time.
I can tell you from real-world experience that these trends have held through “The Great Recession,” too!
For example, tobacco company Altria produced a total return of 15 percent from my first recommendation on July 2, 2007 through May 28, 2010.
Now, are these hard-and-fast rules? Of course not. Just because a company operates in one of these traditionally recession-resistant industries doesn’t guarantee that its stock will go up (or even hold its ground).
In addition, there are some companies I consider great recession plays that operate outside these traditional safe havens — even in technology and retail!
But my point today is simple: Even if the economy continues to weaken from here, you do not have to completely abandon the entire market, especially if you’re looking for steady income.
Best wishes,
Nilus
P.S. I will be issuing the first recommendations for my brand-new Dad’s Income Portfolio service this Friday! So if you want to get on board before those income-boosting, recession-fighting plays go out … and get an entire year of additional recommendations for the special Charter Rate of $69 … I must hear from you by Midnight Eastern Time this Thursday. Click here now for all the details.
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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