People Still Have To Spend: Eleven Dividends for Even Conservative Investors

If we truly are headed into a deep recession domestically as well as globally, the stocks of companies that provide goods and services that we are unlikely to go without during a recession are probably a good bet to continue to grow earnings and dividends throughout a slowdown. The problem is that many of these companies have not been sold off as hard as some of the more economically sensitive names due to investors being aware of this very fact.

Paying closer attention to these types of stocks when selecting investments is one strategy; and probably the more conservative option, during times like these.

Another strategy is to look for deep value in companies that are economically sensitive, and thus have been sold off dramatically, but should be able to thrive again when growth resumes. In either strategy, especially the latter, a low pay out ratio (the amount of money paid out as dividends as a percentage of earnings) is ideal.

Nevertheless, here are some stocks that at least warrant a look for conservative investors looking to be defensive as we enter the downturn:

• Pepsico Inc. (PEP) - 3.2% yield - Snacks, juice, soda, and oatmeal.
• Unilever N.V. (UN) - 6.2% yield - Soap, margarine, soup, olive oil, etc.
• Johnson & Johnson (JNJ) - 2.9% yield - Health care, Band-Aids, Tylenol.
• Diageo PLC (DEO) - 5.3% yield - Alcoholic beverages.
• Phillip Morris International (PM) - 5.0% yield - Tobacco products.
• Rogers Communications (RCI) - 3.0% yield - phone, cable TV, & Internet
• Telus (TU) - 4.8% yield - phone, cable TV, & Internet
• Enbridge Inc. (ENB) - 3.5% yield - Energy distribution.
• Fortis Inc. (FRTSF.PK) - 4.3% yield - Utilities.
• TransCanada Corp. (TRP) - 4.3% yield - Pipelines/Utilities.
• Canadian Utilities (CDUTF.PK) - 3.5% yield - Utilities.

No matter how bad the economy gets you'll still have people sitting on their couch smoking, watching cable TV, eating Doritos®, and drinking Guinness® by the can. In the morning they'll use soap in the shower after taking some Tylenol® for their hangover.

I've tried to not include stocks which I feel are still a little on the expensive side, indicating a flight to safety into these names. Reported yields were as of the market open this week.

Disclosure: None.

Comments

[MarvinMBA:]

Wow...looking for dividends in a downdraft economy is very sporty. In fact I bet the overall return for the next 5 years for the stocks cited will be negative. There are no safe havens in this economy. I sugged CD's that pay say 4.5% as a better bet...at least you know where your money is and what you are going to get.....save yourself and be conservative...MarvinM...

2008 Oct 21 09:10 PM

[Michael Comeau:]

I find a lot of these staples companies to be overvalued. The reduction in input costs is definitely a positive but the stronger dollar will hurt overseas growth.

2008 Oct 21 10:05 PM

[PastTense:]

A lot of people may be switching from the expensive brand names these companies sell to generics.

2008 Oct 22 12:08 AM

[Old Rick:]

You might also consider some of the pipeline MLPs that have been badly beaten up due to market expectations of credit difficulties and lower volumes. These guys are yielding high single digits. KMR/KMP looks like the cream of the crop at around 8%. Others that Morningstar likes are ETE/ETP and MGG. (I own KMR). I'd be interested in downside opinions on the pipelines.

2008 Oct 22 11:43 AM

[scorp99cam:]

I wish I could take you up on that bet User118015, Marvin.

2008 Oct 22 03:06 PM

[Emerald:]

MLP's should hold up well. I don't see activity in shipments of gas and oil declining to a point where pricing deteriorates. Most firms have multi year contracts. They need access to capital to expand but can hold the line for the near future in a weak economy. Long: EPD, TPP, KMP, LINE, BBEP, NGLS.

2008 Oct 25 06:03 PM

[Teak:]

On Oct 25 06:03 PM Emerald wrote:

> MLP's should hold up well. I don't see activity in shipments of gas
> and oil declining to a point where pricing deteriorates. Most firms
> have multi year contracts. They need access to capital to expand
> but can hold the line for the near future in a weak economy. Long:
> EPD, TPP, KMP, LINE, BBEP, NGLS.

What would be better: investing in a MLP (such as Enbridge Energy Partners, EEP) or in a company which is a major shareholder in the MLP (e.g., Enbridge, ENB, with a 27% stake). The financials on EEP don't look all that good right now, but those of the major shareholder (ENB) look much better.

Don't MLPs basically have to sell off parts of themselves to keep up the dividend payments? EEP has a dividend payout ratio of 125% now, which doesn't look good to my conservative eyes.

2008 Dec 25 06:57 AM