What stocks you should buy if you want to ride through the tough times that a deep recession could bring?
Some advisers recommend putting the majority of your assets in cash, some of them in safe-haven assets, such as government bonds and gold, to get your portfolio recession-proof. That approach certainly suits very conservative investors who don’t want to take risk.
However, you can still make decent returns and at the same time be conservative if you add some high-quality, recession-proof stocks in your portfolio.
Research has shown that the companies that provide basic services, such power and gas utilities, telecom operators, healthcare providers and real-estate investment trusts (REITs), are outperform in an economic downturn and recessions. These companies continue to generate cash flows and distribute most of those inflows in dividends.
Here are three top stocks that could prove better picks if you’re putting together a portfolio that should outperform in a recession.
I like Rogers Communications Inc. (TSX:RCI.B)(NYSE:RCI), Canada’s second-largest telecom company, which has the largest market share of the country’s growing wireless segment, dominating about a third of the market’s revenue and subscribers.
Rogers drives about 60% of its revenue from the wireless segment, 26% from its cable division, which includes high-speed internet, information technology, and telephony services to consumers and businesses, and the rest from its vast media assets.
Rogers’s stock is not an ordinary telecom stock where you get most of your capital appreciation through dividends. It has outperformed all its peers over the past five years when it comes to total returns.The company currently offers an annual dividend yield of about 3% with the quarterly dividend payout of $0.5 a share at writing.
The Toronto-based Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP) is another great recession-proof stock to buy. Brookfield owns and operates utilities, transport, energy, and communications infrastructure companies globally.
Its portfolio includes utilities and power transmission systems in North and South America; 37 ports in North America, the U.K, Australia, and Europe; approximately 3,800 kilometres of toll roads in South America and India; and large rail operations in Australia and South America.
That vast number of global assets give Brookfield a unique advantage in an economy under pressure. Brookfield acquires high-quality businesses on a value basis, efficiently manages their operations, and opportunistically sell assets to reinvest capital into the business.
Trading at $64.64 and with an annual dividend yield of 4.4%, Brookfield offers investors an attractive combination of earnings growth, dividend growth, and a high dividend while trading at a reasonable valuation.
Bank of Nova Scotia
In Canada, I also like to add the nation’s top banking stocks in this category because these lenders operate in an oligopoly, protected from intense competition witnessed south of the border.
Big attractions that make Canada’s top lenders good buys are their rock-solid balance sheets, growing payouts, and diversified revenue streams. The nation’s third-largest lender, Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is one such name that could strengthen your recession-proof portfolio.
Scotiabank has expanded in Latin America to grow at a time when Canadian market was saturated. Following its aggressive growth in the region, Scotiabank is now one of the largest lenders in the Pacific Alliance — an economic bloc consisting of Mexico, Peru, Chile, and Columbia.
Another reason that makes Scotiabank stock a good recession stock is the lender’s higher yield, which is close to 5%. Scotiabank has been a reliable name when it comes to paying dividends, having never missed a dividend payment since 1832.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Haris Anwar has no position in the stocks mentioned in this article.