I like the sound of recession-proof dividend stocks, but the truth is, we don't know when and where the next economic weak spot will hit. We certainly don't know how deep the downturn can be or if it will affect some companies or sectors more than others.
That said, Brian Bollinger's list of 10 stocks to weather the next recession did weather the last financial crisis well. Each stock yields more than 2%. Let's dig down and take a closer look at the technical charts of these 10 stocks.
In this daily chart of McDonald's (MCD) - Get Report , above, we can see a 10-month top formation. Just move your eyes across the $115 level. Technicians call this horizontal line a "neckline." Notice how prices bounce off $115 from December to August and September. All the rallies in McDonald's since December have failed, with prices coming back down to that neckline. The slope of the 50-day average line turned down in June, and the slower-to-react 200-day average is now rolling over.
Another observation we have about the McDonald's chart is the on-balance-volume line, which has largely gone sideways to lower since May. A declining OBV line suggests that sellers of MCD have been more aggressive than buyers. Why? The OBV line declines when the volume of shares traded in a stock is heavier on days when it closes lower. This is an indication that sellers are anxious to get out of a security.
In the lower panel is the moving average convergence/divergence oscillator, which is still below the zero line. Thus, prices are considered to be in a downtrend.
So can McDonald's weather a recession and continue to pay its dividend? The answer to that question is above my pay grade, but I can say that the price chart of McDonald's looks vulnerable to a significant decline. I am not sure a 3.05% yield will make a decline more palatable.
In this chart of General Mills (GIS) - Get Report , above, we can see a stock that has broken down below the 50-day moving average line and is testing the rising 200-day average. As prices turned down in September, the OBV line weakened, telling us that selling had increased. The MACD oscillator is below the zero line and not moving toward a buy signal. General Mills is testing support (former resistance) from the April-to-May period, but this support may give way and lead to a deeper decline to around $58.
Getting a 3% dividend may be a good return on your investment, but a possible 20% decline from the July highs could show investors the other side of the coin.
In this chart of Waste Management (WM) - Get Report , above, we can see a stock that is correcting a rally to $70 from $52. Prices have declined to break the 50-day average, and the slope of this average has turned lower. The 200-day average line is rising and below the market, so the longer-term trend is still okay.
The movement of the OBV line is a little perplexing to me. The OBV line has been steady to rising the past three months as prices have declined. This would mean that investors bought more shares of WM even as it declined. The moving averages of the MACD oscillator just crossed below the zero line, signaling a cover-shorts buy.
WM could move higher from here, but I would expect a period of sideways consolidation similar to the trading seen in October through January before another move to the upside.
In this chart of Hasbro (HAS) - Get Report , above, we see a stock that has been correcting since April-to-May. There are dips and bounces, but the bounces keep making lower highs. Hasbro encountered resistance around $80 in November and March/April, but prices broke this area this month along with the 200-day average line. The MACD oscillator has been below the zero line since late June as prices have been on the defensive.
Despite various tie-ins to popular movies, it looks like Hasbro could continue to weaken, with $70 our downside price objective. I am not sure if a 2.55% yield will be all that comforting if prices reach our price target.
C.H. Robinson Worldwide
In this daily chart of C.H. Robinson Worldwide (CHRW) - Get Report , above, we get a look at one of the members of the Dow Transportation Average. While CHRW may be paying you 2.45% to be patient, I would be a little nervous that a small triple top in April/May/July has capped gains for now and that support is down in the $64-top$60 area. The 50-day moving average line recently crossed below the 200-day average for a bearish "death cross."
In this chart of Darden Restaurants (DRI) - Get Report , above, we get a snapshot of the popular dinning chains. Overall, this stock has been in a broad trading range the past year, but a small double top in March and June could mean headwinds for discretionary spending in the months ahead.
Darden is trading below the rising 200-day average line and rallies to the underside of that line have failed the past two months. The 50-day average also moved below the 200-day for a death cross last month. A close below $60 is likely to precipitate further declines. Major support is down around $50.
Omega Healthcare Investors
This chart of Omega Healthcare Investors (OHI) - Get Report , above, doesn't show the price peak in early 2015, and it doesn't show the 6.5% yield. From a $27 low in February, shares of Omega Healthcare have done well. Omega Healthcare is above the rising 50-day and the positively sloped 200-day average lines.
The OBV line turned up in May and tells us that buyers of OHI have been more aggressive. The MACD oscillator looks like it is turning up to a new buy signal. A close above $38 will refresh the current bull trend.
A big dividend and a rising price chart is just what the doctor ordered.
Watsco's (WSO) - Get Report chart, above, is just what we want to see. Watsco has risen five-fold from its 2009 nadir, and this 12-month snapshot is also bullish. The slopes of our two favorite moving averages are positive. The OBV line turned up in January before the price action, and the MACD oscillator is narrowing now toward a cover-shorts buy signal.
Investors looking for a good total return (yield and price appreciation) could consider the long side of Watsco.
In this chart of Cullen/Frost Bankers (CFR) - Get Report , above, we see a stock that has been rolling over the past three months. Prices just dipped below the peaking 50-day average line. The OBV line has turned down this month, and the MACD oscillator could soon go below the zero line for a sell signal.
A close below $66 is likely to weaken the chart and break the uptrend from the January low. We would stay on the sidelines on Cullen/Frost waiting for a better buying opportunity.
Tanger Factory Outlet Center
Tanger Factory Outlet Center (SKT) - Get Report , above, recently made a new high, breaking the early 2015 high. Prices have pulled back the past two months, but with a rising OBV line and a cover-shorts signal from the MACD oscillator, I would expect more price strength in the weeks ahead.
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