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3 Recession-Proof Dividend Stocks Yielding Up to 4%

Can I tell you about my worst day as an investor?

I remember sitting in front of my computer, hands trembling, a giant pit sitting in my stomach, watching my wealth melt away with each passing tick. The Dow Jones Industrial Average fell 500 points… 750 points… 1,000 points.

I’m scared, really scared. At this moment I would rather crawl under a rock and die rather than ever buy a stock again.

My screen is a wall of red blocks. The phone rings. I ignore it. I’m too humiliated and ashamed to talk to anyone.

The worst part? Companies are cutting their distributions left and right. They’re scrambling to conserve cash just to keep the lights on. My stream of dividend income, something that had taken me years to build, just dried up.

Scary, isn’t it? But this is exactly how I remember the financial crisis six years ago. Sure, the specifics are getting hazy, but the feelings from that experience have been seared into my memory.

It might seem odd to be talking about the next recession when the stock market is hitting record highs. However, that doesn’t change an undeniable truth — another crisis will strike again… eventually. I have no insight as to why or when, but rest assured, it is coming.

As dividend investors, many of us rely on regular distributions to pay the bills. We can’t afford to watch our income streams dry up every time the economy hits a rough patch.

That’s why it’s critical to own recession-proof stocks — companies that can continue mailing out dividend cheques to shareholders no matter what the economy is doing. So with this theme in mind, here are three rock-solid dividend payers that could survive almost anything.

This company hasn’t missed a dividend payment since 1984

Consumer staples are typically among the very last items that people cut from their budgets. Even during the hardest times, people still need to eat, drink, and care for themselves.

Empire Company  (TSX: EMP.A) is the perfect example of this. The company owns 800 supermarkets across Canada under names like Sobeys, IGA, and Thrifty Foods. While other businesses might see their revenues decline in a downturn, grocery stores largely weather these tough periods just fine.

This isn’t exciting stuff. However, thanks in large part to its boring business and conservative management team, Empire has paid out a dividend to shareholders every quarter since 1984 — a period that included three recessions. Unless people stop eating, investors can count on those cheques to keep rolling in for years to come.

The safest dividend on the TSX

During a recession consumers cut a lot of items from their budget, but some luxuries survive. Sure, we might all delay buying that new plasma screen TV or put off kitchen renovations, but many of us will still find some extra cash for a chocolate bar or a soda.

Tim Hortons  (TSX: THI)(NYSE: THI) is one of those little luxuries that’s hard to live without. Caffeine is habit-forming, and given that a large double-double only costs $1.71, indulging on a morning coffee run won’t break the bank.

Is it any wonder, then, that Tim Hortons sailed through the last recession almost unscathed? In fact, the company even managed to increase its dividend in late 2009, right at the height of the financial crisis. This is a distribution you can have confidence in.

This company has 42 straight dividend hikes… and counting

Another place where you can find recession-proof dividends is the utility sector. This makes sense, after all, as people need to keep the lights on and the water running. Have you ever tried to tough it through a Canadian winter without heat?

That’s why Fortis  (TSX: FTS) has been able to power through downturns while posting stable results and even raising its distribution. Remarkably, the company hasn’t missed a dividend payment since the 1940s. The firm has managed to increase its payout for 42 consecutive years.

Thanks to the economics of the industry, utilities tend to have even returns. These are natural monopolies. It just doesn’t make business sense to have two competitors duking it out. That means companies like Fortis can earn big returns year after year without competition eating into margins.

How safe is your portfolio from a recession?

Don’t let memories of the financial crisis scare you out of buying stocks. The fact is, equities are the best way to preserve and grow your wealth over the long haul. That said, conservative investors need to build an income stream that could outlast almost anything. The three stocks above are a great place to start.

Here's one more recession-proof stock

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Fool contributor Robert Baillieul has no positions in any of the stocks mentioned in this article.

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