2 Dividend Stocks That Could Help Recession-Proof Your Portfolio


In times of market turbulence, dividend stocks can often add stability to a portfolio because they offer consistent payouts to shareholders and historically less volatile stock prices. Aside from the general reliability of dividend stocks, companies that have historically increased their dividends have historically outperformed the overall stock market.

With that in mind, here are three dividend stocks that could help recession-proof your portfolio.

1. Casey’s General Store

Casey’s General Store (CASY -0.62%), a leading US convenience store chain, has increased its dividend for 23 consecutive years and has paid a dividend every quarter for more than 30 years. Its current quarterly dividend is $0.38 per share, which translates to a yield of about 0.70%.

A key metric for any dividend stock is its payout ratio (annual dividend payments divided by annual earnings), which measures the company’s ability to pay dividends over a period of time.

In general, investors should look for a payout ratio of less than 75%, as this indicates a stable dividend and signals that the company is likely to continue paying dividends in the future. With Casey’s payout ratio a paltry 12%, the convenience store chain should be able to increase its dividend for the foreseeable future.

Sales and earnings per share (EPS) are also rising sharply. For the first nine months of fiscal 2023, the company had total revenue of $11.7 billion and diluted earnings per share of $10.42, which offset growth of 23.9% and 38.9%, respectively corresponds to the previous year.

Despite its dividend history and a total return of around 95% over the past five years, electrification of cars could raise some concerns among shareholders. For the trailing nine-month period, same-store gallon gasoline sales declined 0.9% year-on-year. Gas sales provide the company with a healthy margin of 40.7 cents per gallon, which translates to gross profit of $855 million for the first nine months of fiscal 2023.

In the near term, America will be heavily gas-driven, with only 1% of the estimated 250 million cars on the road being electric, meaning gas sales at Casey’s should continue to be plentiful and profitable. In the long term, however, Casey’s will likely need to transition to EV chargers, as experts estimate that EVs could account for 60% to 70% of the cars on the road by 2050. The good news is that the company is already taking this step with 138 EV charging stations in 28 locations and plans to add more this year.

In the face of a recession, Casey’s General Stores is well-positioned to meet the needs of drivers who will be on the road in good times and bad, making it an excellent stock to add to dividend portfolios.

2. Costco

In a recession, consumers become more price conscious and often look for the best deals to save money. For most shoppers, the retailer is the first thing that springs to mind when it comes to saving money on everyday essentials Costco Wholesale (COSTS 0.18%).

The member-only retailer’s stock is down nearly 10% over the past 12 months but is up more than 150% over the past five years.

Costco’s quarterly dividend of $0.90 translates to a yield of 0.76% and a payout ratio of about 26%. On the surface, Costco’s dividend might look unimpressive. However, investors should be aware that the company has increased its dividend annually since 2004 and regularly pays a special dividend about every three years, most recently in December 2020 at $10 per share.

Costco’s membership numbers provide a glimpse of the company’s popularity with consumers. First, its renewal rate — the percentage of its customers who renew their membership each year — is an impressive 92.6% in the US and Canada and 90.5% globally.

Second, the number of Costco members grew from 63.4 million to 68.1 million over the trailing 12 months, an increase of about 7.4%. As a result, the company generated around $4.3 billion in the last 12 months. These fees are highly profitable, and management has historically collected them every five years and seven months on average. Since the last membership fee increase was in June 2017, or five years and nine months ago, it is reasonable to expect another increase soon.

A mother and child shop at Costco.

Image source: Getty Images.

The definite downside to Costco stock is its valuation. A popular valuation metric for established companies is price-to-earnings (P/E) multiples, and Costco is currently around 35. For reference, Costco’s competitor Goal And Walmart have P/E ratios of around 26 and 32, respectively.

In addition to Costco’s impressive business model and dividend history, the market appreciates it based on its past performance against its peers. Over the decade, Costco stock devastated the market with a total return of 456% versus the market’s 199%.

However, given Costco’s dividend history and stalled business model, the stock should continue to rise S&P500 – as it has done for years.

Are these dividend stocks bought?

Dividend stocks can provide a sense of security in uncertain markets because you receive income each quarter just for owning the stock. Additionally, these stocks are often less risky because management knows it must allocate a portion of the company’s profits to its shareholders.

These two stocks are particularly specialized in selling consumer staples, which should protect them against a market downturn while you get paid to keep them in your portfolio.

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