There is a bit of controversy about whether or not we're in a recession.
Technically we've had two consecutive quarters of negative growth, though that's not what determines whether or not a recession is underway.
These are the six criteria used by the National Bureau of Economic Research to determine whether or not the US economy is in a recession.
In the first half of the year, all six showed positive growth, and of course, the July jobs report was a blowout.
May and June were revised higher by 28K; over the last 3 months, we've added an average of 437K net jobs each month.
Thus far, corporate earnings are also growing at 9%, driven by 14% sales growth.
In other words, if this is a recession, it's the oddest one in history.
Bottom line, we're not in a recession... yet.
However, the economic data potentially points to a recession beginning in 4.5 to 5 months.
The bond market, via its yield curves, the most accurate recession forecasting tool in history, agrees with a recession starting around January 2023, according to Deutsche Bank.
Or, to put it another way, the "smart money on Wall Street," the bond market, is rather certain a recession is coming soon.
The good news is that the recession is likely to be mild.
In other words, a short (2 quarter) contraction, possibly the mildest or 2nd mildest in history could be coming soon.
Moody's even thinks we could keep creating jobs through the entire recession at an average rate of about 75K per month.
Contrast that with the Bank of England's forecast for a five-quarter recession in the UK with a peak decline of 2.1% which would be worse than the Great Recession.
In other words, the BOE is forecasting a financial crisis like recession in the UK while the US is likely looking at a historically short fiscal/monetary style downturn.
Corporate America has $7 trillion in cash right now, our banks are well capitalized and preparing for the downturn already, and consumer balance sheets are some of the strongest they've been in history.
The US has literally never been better prepared for a short and mild recession, created on purpose by the Federal Reserve to slay the demon of high inflation.
But even mild recessions are scary for investors, if only because they tend to result in 36% bear markets.
That's approximately what the blue-chip consensus also expects this time (a 38% consensus peak decline).
But after market hell comes market heaven.
Never since 1971 have we suffered an 18+% six-month decline without stocks being up within three years.
And what happens if we fall into a 38% recessionary bear market, which would be historically normal and healthy?
The pain that's likely coming soon will be temporary. The gains that are following afterward will be permanent and potentially life-changing.
That's why safe high-yield blue-chips can be a great choice for anyone looking to put money to work in today's uncertain times.
Volatility caused by money managers who speculate irrationality with huge sums will offer the true investor more chance to make intelligent investment moves. He can be hurt by such volatility only if he is forced, by either financial or psychological pressures, to sell at untoward times. - Warren Buffett
Volatility has nothing to do with actual fundamental risk. Buffett defines risk as the risk of permanently losing 100% of your money because the company goes to zero.
|Credit Rating||30-Year Bankruptcy Probability|
|AAA||0.07% (Johnson & Johnson, Microsoft)|
|AA+||0.29% (Apple, Alphabet)|
|AA||0.51% (Allianz, Walmart)|
|AA-||0.55% (BlackRock, Meta, Toronto-Dominion Bank)|
|A+||0.60% (3M, Merck, Coca-Cola)|
|A||0.66% (Home Depot, Target)|
|A-||2.5% (Dividend Aristocrat Average)|
|BBB+||5% (Enbridge, Lowe's, AbbVie)|
|BBB||7.5% (Altria, Netflix)|
|BBB-||11% (Broadcom, Boeing) Investment Grade Limit|
|B||37% (Carnival, 33% risk of a downgrade to B-)|
|CCC+||52% (AMC, 33% probability of upgrade to B-)|
(Sources: DK Research Terminal, S&P, University of St. Petersburg)
Credit ratings are a great proxy for fundamental risk, based on over 100 years of default data.
Rating agencies use industry-specific safety models whose only goal is to estimate 30-year default risk.
An A-rated company means a 1 in 40 or less probability over 30 years of a company filing for bankruptcy and wiping out your equity investment.
An investment grade company has a 1 in 9 or less probability over three decades of going to zero.
So let me show you how to quickly and easily find the best A-rated high-yield blue-chips you can trust in this or any future recession.
I'm using the Dividend Kings Zen Research Terminal, which runs off the DK 500 Master List.
The DK 500 Master List is one of the world's best watchlists, including
Here is the screen I ran in the terminal to find the best A-rated high-yield blue-chips you can safely buy today in two minutes.
And this is how I found the 13 best A-rated high-yield blue-chips you can trust in this, or any recession.
I've linked to articles exploring each company's investment thesis, risk profile, growth prospects, valuation, and total return potential.
The Canadian companies: MFC, BNS, CM, SLF, BMO, TD, and NTIOF, have 15% tax withholdings on dividends in taxable accounts.
You can recoup the dividend withholding via a tax credit though it does require some paperwork above $300/$600 in total annual withholdings per person/couple.
The German companies: SIEGY, ALIZY, and MURGY have a 26.375% withholding.
In other words, for CA companies, it's the most tax efficient to own them in retirement accounts.
For all other countries (the UK has no withholding except for REITs) own them in taxable accounts to qualify for the tax credit.
Now compare these incredible high-yield blue-chips to the S&P 500.
Analysts expect the S&P 500 to potentially deliver about 10% annual returns through 2024, the historical norm.
But my goal isn't to help you earn 70% more over 2 years, my goal is to help you achieve life-changing income and wealth compounding while sleeping well at night in this and all future recessions.
How do I know these are some of the world's safest high-yield blue-chips?
Because they aren't just blue-chips, they are Super SWANs and higher quality than the dividend aristocrats.
|Metric||Dividend Aristocrats||13 A-Rated High-Yield Blue-Chips||Winner Dividend Aristocrats|| |
Winner 5% Yielding Low Volatility Blue-Chips
|Average Recession Dividend Cut Risk||0.5%||0.5%||1||1|
|Severe Recession Dividend Cut Risk||1.5%||1.4%||1|
|Dividend Growth Streak (Years)||44.8||16.7||1|
|Long-Term Risk Management Industry Percentile||67% Above-Average||80% Very Good||1|
|Average Credit Rating||A- Stable||A Stable||1|
|Average Bankruptcy Risk||3.04%||0.88%||1|
|Average Return On Capital||88%||45%||1|
|Average ROC Industry Percentile||69%||89%||1|
|13-Year Median ROC||74%||54%||1|
|Discount To Fair Value||-0.2%||23.1%||1|
|DK Rating||Hold||Strong Buy||1|
|LT Growth Consensus||8.7%||8.2%||1|
|Total Return Potential||11.1%||12.9%||1|
|Risk-Adjusted Expected Return||7.5%||9.0%||1|
|Inflation & Risk-Adjusted Expected Return||5.3%||6.7%||1|
|Conservative Years To Double||13.5||10.7||1|
(Source: Dividend Kings Zen Research Terminal)
These A-rated high-yield Super SWANs match or exceed the aristocrats on almost every important quality and safety metric.
The aristocrats average a very low 1.5% risk of a dividend cut in a severe recession and just 0.5% in a historically average recession.
These A-rated high-yield blue-chips average 1.4% severe recession cut risk and 0.5% in a historically average recession.
The aristocrats naturally have a better dividend growth streak at almost 45 years, but these A-rated high-yield blue-chips average a 17-year streak, not far from the Ben Graham 20-year standard of excellence.
The aristocrats have a superior return on capital at 88%, but these A-rated high-yield blue-chips average a 45% return on capital, 3X that of the S&P 500.
And in terms of return on capital industry percentile, these A-rated blue-chips are in the top 11% of their respective peers, representing some of the widest moat names in these sectors.
S&P estimates their average 30-year default risk at 0.88%, a 1 in 114 chance of losing your money buying any of these 13 companies.
Six rating agencies consider their long-term risk-management to be in the 80th percentile. How good is that?
|Classification||Average Consensus LT Risk-Management Industry Percentile|| |
|S&P Global (SPGI) #1 Risk Management In The Master List||94||Exceptional|
|13 A-Rated High-Yield Blue-Chips||80|| |
|Strong ESG Stocks||78|| |
Good - Bordering On Very Good
|Foreign Dividend Stocks||75||Good|
|Low Volatility Stocks||68||Above-Average|
|Master List average||62||Above-Average|
|Monthly Dividend Stocks||60||Above-Average|
|Dividend Champions||57||Average bordering on above-average|
(Source: DK Research Terminal)
These are companies whose management teams and corporate cultures have proven to be highly adaptable and capable of overcoming any challenges that arise from the economy or competitors.
And that's why I trust these A-rated high-yield blue-chips and so can you. And here's why you might want to buy them today... in case we manage to avoid a recession in 2023.
For context, the dividend aristocrats trade at 20.3X forward earnings, basically historical fair value. The S&P 500 trades at 17.7X earnings, a 5% historical premium.
These A-rated high-yield blue-chips trade at 10.1X earnings, a 23% historical discount.
Analysts expect them to deliver 29% total returns in just the next year. But their fundamentally justified 12-month total return potential is 36%.
But I'm not trying to score you a quick 29% gain or even 36% total returns. I'm trying to help you achieve 20X inflation-adjusted returns over 30 years.
Not only do these A-rated high-yield blue-chips offer one of the world's safest 4.7% yields, but they are growing at 8.2% analysts think they can deliver nearly 13% long-term returns.
|Investment Strategy||Yield||LT Consensus Growth||LT Consensus Total Return Potential||Long-Term Risk-Adjusted Expected Return||Long-Term Inflation And Risk-Adjusted Expected Returns||Years To Double Your Inflation & Risk-Adjusted Wealth|| |
10-Year Inflation And Risk-Adjusted Expected Return
|13 A-Rated High-Yield Blue-Chips||4.7%||8.2%||12.9%||9.0%||6.8%||10.6||1.93|
(Sources: Morningstar, FactSet, YCharts)
That's about 2% more than analysts expect from the dividend aristocrats and 3% more than the S&P 500. Think that 3% higher returns over time don't matter?
|Time Frame (Years)||7.9% CAGR Inflation-Adjusted S&P Consensus||8.8% Inflation-Adjusted Aristocrat Consensus||10.7% CAGR Inflation-Adjusted 13 A-Rated High-Yield Blue-Chips Consensus||Difference Between Inflation-Adjusted 13 A-Rated High-Yield Blue-Chips Consensus And S&P Consensus|
(Source: DK Research Terminal, FactSet)
Analysts think these blue-chips, which have been growing steadily for decades, can deliver 21X inflation-adjusted returns over 30 years and potentially 160X bagger returns for your heirs.
|Time Frame (Years)||Ratio Aristocrats/S&P Consensus||Ratio Inflation-Adjusted 13 A-Rated High-Yield Blue-Chips Consensus vs. S&P consensus|
(Source: DK Research Terminal, FactSet)
2% to 3% better returns won't change your life in 10 years, but it certainly could over 30 to 50 years.
So 2X the yield of the aristocrats and 3X the yield of the S&P 500, with superior safety and potentially put to 3.6X more inflation-adjusted wealth over time? This must be too good to be true! It's not.
The future doesn't repeat, but it often rhymes. - Mark Twain
Past performance is no guarantee of future results. Still, studies show that blue-chips with relatively stable fundamentals over time offer predictable returns based on yield, growth, and valuation mean reversion.
So let's look at how these A-rated high-yield blue-chips performed over the last 22 years when about 92% of total returns were the result of fundamentals, not luck.
Analysts expect close to 13% long-term returns from this financial heavy portfolio. That sounds crazy, right? US financials have delivered about 1/3rd of those returns over the last 22 years.
But guess who didn't blow themselves up in the Great Financial Crisis? Canadian Banks and German insurance blue-chips.
In order to win the game, first you must not lose it. - Chuck Noll
These A-rated high-yield Super SWANs delivered 12.2% returns for 22 years, a 13X return that ran circles around US financials, the S&P 500 and even the Nasdaq.
Did they fall a lot in the GFC? You bet. But they fell 30% less than US financials, and let's not forget the Nasdaq fell 81% during the tech crash.
These A-rated blue-chips have delivered almost 8X inflation-adjusted returns over the last 22 years, including this current bear market.
Think it's impossible for these high-yield blue-chips to beat the market by 3X over the next 50 years? They did it over the last 22 years by focusing on safety and quality first.
The average one-year return for these A-rated blue-chips is 14% over the last 22 years, higher than the Nasdaq's 11.5% and 2X that of US financials.
Their average 15-year rolling return is 11.3%, almost 50% better than the S&P 500 and almost 4X higher than US financials.
And let's not forget about the primary purpose of high-yield investing, dependable income growth!
|Portfolio||2001 Income Per $1000 Investment||2022 Income Per $1000 Investment||Annual Income Growth||Starting Yield|| |
2022 Yield On Cost
|SPDR Financial Sector ETF||$17||$50||5.27%||1.7%||5.0%|
|13 A-Rated High-Yield Blue-Chips||$50||$680||13.23%||5.0%||68.0%|
(Source: Portfolio Visualizer Premium)
Over the last 21 years, these A-rated high-yield blue-chips delivered over 50% faster annual income growth than the S&P 500 and almost 3X faster growth than US financials.
What about during the Great Recession?
Their yield in 2001 was 5%, similar to today's yield. Their valuations were also similar to today's dirt cheap. Today they generate a yield on cost of 68%.
|Metric||S&P 500||13 A-Rated High-Yield Blue-Chips|
|Annualized Income Growth Rate||8.73%||13.23%|
|Total Income/Initial Investment||0.66||5.52|
|Inflation-Adjusted Income/Initial Investment||0.39||3.27|
|More Inflation-Adjusted Income Than The S&P 500||8.39|
(Source: Portfolio Visualizer Premium)
Over the last 21 years, these A-rated high-yield Super SWANs delivered 5.5X your initial investment. That's 3.3X inflation-adjusted returns and 8.4X more real income than the S&P 500.
What about future income growth?
|Analyst Consensus Income Growth Forecast||Risk-Adjusted Expected Income Growth||Risk And Tax-Adjusted Expected Income Growth|| |
Risk, Inflation, And Tax Adjusted Income Growth Consensus
(Source: DK Research Terminal, FactSet)
Analysts think these 13 A-rated high-yield blue-chips could deliver similar 14% annual income growth in the future, which, adjusted for the risk of the company not growing as expected, inflation, and taxes, is 6.1% real expected income growth.
Now compare that to what they expect from the S&P 500.
|Time Frame||S&P Inflation-Adjusted Dividend Growth||S&P Inflation-Adjusted Earnings Growth|
|1981-2021 (Modern Falling Rate Era)||2.8%||3.8%|
|2008-2021 (Modern Low Rate Era)||3.5%||6.2%|
|FactSet Future Consensus||2.0%||5.2%|
(Sources: S&P, FactSet, Multipl.com)
The S&P 500 is now dominated by companies focused primarily on buybacks instead of dividends, which could explain why analysts think future dividend growth will be slower than in the recent past.
What about a 60/40 retirement portfolio?
In other words, these A-rated high-yield blue-chips could generate about 3.6X faster real income growth than the S&P 500 and 12X faster income growth than a 60/40.
This is the power of high-yield blue-chip investing in a bear market.
Don't get me wrong, Super SWAN (sleep well at night) quality has nothing to do with short-term volatility.
I am not saying that safe A-rated high-yield blue-chips can't fall if the market tumbles into another leg of this bear market.
What I am saying is that each of these A-rated high-yield blue-chips is a very dependable source of generous safe and steadily growing income over time.
We might still avoid a recession in 2023, but it would take the Fed threading a challenging needle.
A soft landing isn't impossible; it's just improbable. Further declines in the market aren't impossible; they are just highly unlikely given what's likely coming in terms of rate hikes.
But do you know what doesn't have to worry about recessions or what the Fed is doing? Investors who own these A-rated high-yield blue-chips.
Do you know how you can sleep well at night and retire in safety and splendor no matter how many recessions we get in the coming years and decades? By focusing on safety and quality, prudent valuation, and sound risk management always.
If you focus on rock-solid fundamentals, you never have to pray for luck on Wall Street; you'll make your own.
Luck is what happens when preparation meets opportunity. - Seneca the younger
ALIZY, MFC, BNS, MURGY, CM, SLF, VFC, BMO, TD, FRT, SIEGY, NTIOF, and MMM represent 13 great ways to make your own luck in the stock market today.
Not to try to score a quick 29% or 36% gain in 12 months, though these A-rated blue-chips have the potential to do that.
These are the kinds of world-class quality dividend blue-chips that can help you enjoy safe fat yield today but, more importantly, enjoy 20X real returns in the coming decades.
Or, to put it another way, they are a very low-risk way to retire in safety and splendor.
Dividend Kings helps you determine the best safe dividend stocks to buy via our Automated Investment Decision Tool, Zen Research Terminal, Correction Planning Tool, and Daily Blue-Chip Deal Videos.
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This article was written by
Adam Galas is a co-founder of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 5,000 investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.
The WMR brands include: (1) The Intelligent REIT Investor (newsletter), (2) The Intelligent Dividend Investor (newsletter), (3) iREIT on Alpha (Seeking Alpha), and (4) The Dividend Kings (Seeking Alpha).
I'm a proud Army veteran and have seven years of experience as an analyst/investment writer for Dividend Kings, iREIT, The Intelligent Dividend Investor, The Motley Fool, Simply Safe Dividends, Seeking Alpha, and the Adam Mesh Trading Group. I'm proud to be one of the founders of The Dividend Kings, joining forces with Brad Thomas, Chuck Carnevale, and other leading income writers to offer the best premium service on Seeking Alpha's Market Place.
My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives.
With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and safe and dependable income streams in all economic and market conditions.
Disclosure: I/we have a beneficial long position in the shares of ALIZY, MFC, BNS, MURGY, CM, SLF, VFC, BMO, TD, FRT, SIEGY, NTIOF, MMM either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Dividend Kings owns ALIZY, MFC, BNS, MURGY, CM, SLF, VFC, BMO, TD, FRT, SIEGY, NTIOF, and MMM in our portfolios.