Recession-Proof Your Portfolio With Top Bear Market Dividend Aristocrats

by: Sure Dividend


The market is overvalued by 60% based on the Shiller PE.

Dividend aristocrats have done much better in recessions than the S&P 500.

McDonald's had the Lowest Drawdown of any Dividend Aristocrat in 2008.

With the market overvalued by 60%, we will see a market correction as the price to earnings ratio of the market reverts to its historical level at some point. It may be 30 days from now or 5 years from now, but it will happen eventually. This article will help you find stocks that are likely to perform well in a recession by examining what stocks performed best over the 2007 to 2009 recession.

Dividend Aristocrats & Recessions

Dividend Aristocrats have historically performed well during recessions. The Dividend Aristocrats index was down -21.88% in 2008, versus -37.00% for the S&P 500 index. Dividend Aristocrats tend to do better during recessions because they are sound businesses with stable cash flows. Amazingly, the Dividend Aristocrat index slightly outperformed the S&P 500 in 2009 as well, during the recovery from the recession. In 2009, the Dividend Aristocrat Index was up 26.56% versus 26.46% for the S&P 500 index. In fact, the Dividend Aristocrat index has soundly outperformed the S&P 500 index over the last decade.

Source: S&P 500 Dividend Aristocrats Fact Sheet

Dividend Aristocrats with Lowest Drawdown: 2007 through 2009

Investing in Dividend Aristocrats is a great way to lessen the impact of recessions while still participating in bull market runs. Some Dividend Aristocrats weathered the recession of 2007 to 2009 much better than others. The 10 Dividend Aristocrats from 2007 with the lowest maximum drawdown (biggest loss from highest price to lowest price) from the beginning of 2007 to 2009 are shown below. For reference, I have included the maximum drawdown and returns for SPY (S&P 500 ETF) as well for comparison.

McDonald's (NYSE:MCD) had the lowest overall maximum drawdown, at -21.65%. McDonald's was also the only Dividend Aristocrat to post positive returns in 2007, 2008, and 2009. The company had the highest return on the top 10 in 2007, as well. Wal-Mart (NYSE:WMT) had the second lowest maximum drawdown through the period at just -26.19%. The company narrowly missed posting positive returns in all 3 years, with a slight loss of -4.49% in 2009. Wal-Mart performed best when the economy was at its worst. The company gained 21.59% in 2008, as the S&P 500 ETF, SPY, was down over -35%.

The companies on the list represent a diverse mix of industries:

Fast Food Restaurants
1. McDonald's

Discount Retailers
1. Wal-Mart

Medical Instruments, Supplies, Appliances, & Equipment
1. C. R. Bard (NYSE:BCR)
2. Abbott Labs (NYSE:ABT)
3. Becton, Dickinson (NYSE:BDX)

Consumer Products
1. Clorox (NYSE:CLX)
2. Johnson & Johnson (NYSE:JNJ)
3. Kimberly-Clark (NYSE:KMB)

1. Consolidated Edison (NYSE:ED)

Business Software
1. Automatic Data Processing (NASDAQ:ADP)

The businesses on this list are all world-class businesses. They operate in industries that are resistant to recessions. People flock to cheap food and products during hard financial times. Some things cannot be cut back on, no matter the price. Utilities and medical supplies (BCR, ABT, BDX) are among these items. Consumer products (CLX, JNJ, KMB) are also purchased regardless of the economic climate. Finally, payrolls still need to be processed when the economy is shrinking. These businesses all did very well from 2007 to 2009. What businesses today would be able to weather the storm in a similar fashion?

Top 5 Recession-Proof Dividend Aristocrats


P/E ratio 2007: 17.18

P/E ratio now: 15.93

Wal-Mart is positioned just as well to handle a recession today as it was in 2007. The company has increased its store count and selling space since 2007. When a recession comes, people will continue to shop at Wal-Mart to take advantage of the discount retailers' low prices. Wal-Mart is a Top 10 stock based on the 8 Rules of Dividend Investing.


P/E ratio 2007: 14.39

P/E ratio now: 18.41

McDonald's experienced something of a renaissance over the 2000s. Same store sales increased steadily, and the company modernized its restaurants. McDonald's continues to expand internationally. The company is the global leader in fast food, with a market cap of $100 billion. Earnings per share increased each year from 2007 to 2009. McDonald's sales increase during recessions as consumers switch to lower priced restaurant options. McDonald's is among the cheapest restaurants, and benefits from the shift to cheap food during recessions. McDonald's is a Top 10 stock based on the 8 Rules of Dividend Investing

Exxon Mobil (NYSE:XOM)

P/E ratio 2007: 10.24

P/E ratio now: 13.60

Exxon Mobil was not a Dividend Aristocrat in 2007, so it was not included in the original study. Exxon is a Dividend Aristocrat today. The company performed well (comparatively) during the recession, with a maximum drawdown of -33.73%. As long as the world demands energy, Exxon Mobil stands to profit. The company has historically been very profitable during recessions (and during economically prosperous times as well). Exxon Mobil is a Top 10 stock based on the 8 rules of Dividend Investing.

Becton, Dickinson

P/E ratio 2007: 24.02

P/E ratio now: 24.78

Becton, Dickinson manufactures and markets medical, diagnostic, and bioscience products. The company generates about 2/3 of its revenue overseas. The company performs well during recessions because medical products are in demand even during economic downturns. The company is growing rapidly in emerging markets, and China in particular. Chinese revenues grew about 17% year-over-year for the company.


P/E ratio 2007: 18.67

P/E ratio now: 20.13

Kimberly-Clark manufactures and markets branded consumer goods products. The company's top brands include Huggies, Kleenex, & Kotex. The business performed well during the last recession. Earnings dipped slightly from a high of $4.25 per share in 2007 to $4.06 per share in 2008. Recessions do not significantly impact the operating performance of Kimberly-Clark because the company sells staple consumer products that are used at the same speed regardless of the economic climate.

Disclosure: I am long WMT, MCD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.