Government data released on Tuesday confirmed that Canada had officially fallen into a recession in the first half of 2015 due to the significant drop in oil prices. The economy contracted 0.5% in the second quarter, which was smaller than the first quarter’s contraction of 0.8%.
Recessions always make people nervous, but on the whole, they’re not all that uncommon. Sometimes economies grow and sometimes they don’t. However, investors tend to overreact to both good and bad news, so when the word recession is thrown around, there is some panic.
Fortunately for you, there is a way that you can recession-proof your portfolio, so when the economy does get strong again, you’re in a solid position to shine. The company that I advise investors to seriously look at during a recession is BCE Inc. (TSX:BCE)(NYSE:BCE). There are two primary reasons why I think investors ought to own this stock when times get a little rough.
The first has to do with the type of business it is. BCE is a telecommunications company that offers cable, Internet, and mobile along with diversified media offerings that give the company revenue in multiple places. But it’s the cable, Internet, and mobile segments that I think give BCE its power.
I don’t know about you, but I am pretty much hooked to my cell phone. And more than that, I am hooked to my Internet. I’ll skip a meal before I lose out on the Internet. And in our connected society, that’s probably the case for many people. Therefore, BCE is not going to see people suddenly cut their Internet and mobile plans just because a recession hits. They will cut in other places, such as travel, eating out, and extra shopping, but mobile and Internet are fundamental needs of society.
That leads me to the second reason that BCE is a great portfolio builder during a recession: dividends. Because the company knows that it will, for the most part, generate ample revenue even during the recession, it is able to offer a tremendously lucrative yield. Some analysts have even suggested that BCE is the top dividend stock in Canada.
Based on current prices, BCE pays out a yield of 4.92%. You are getting nearly 5% a year in income, which comes out to $0.65 a share per quarter. If you’re reinvesting those dividends back into more stock, you’ll see your holdings grow rather quickly. And if investors overreact as much as I expect them to, BCE could drop in price in the short term, which is a blessing in disguise. You’ll be able to reinvest those dividends at a cheaper share price, thus growing your portfolio even more.
BCE is not the only stock that helps protect you against recession. The truth is, dividend stocks on the whole are great ways of ensuring that your portfolio is secure. As long as the company is a sound investment (and BCE is), then even if the share price fluctuates, you’ll be in a good place because those dividends will continue coming in.
Want more top dividend stocks?
BCE Inc. is great, but you need other stocks. Diversification is key and as long as you have a few different dividend paying companies in your portfolio, you'll be in a much better position.
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Fool contributor Jacob Donnelly has no position in any stocks mentioned.