Editors' pick: Originally published Jan. 21.

The S&P 500 is down nearly 9% in January. The market is off to one of its worst starts ever.

The VIX Volatility Index is spiking, indicating that the stock market is becoming more turbulent. Positive returns on most equities are very much in doubt for 2016.

With global markets threatening another bear market, investors should fortify their portfolios with safe-harbor business that will do well in any economic environment.

The three blue chip stocks in this article have a long history of paying steady or rising dividends through recessions. All three sell low-priced goods consumers buy whether the economy is booming or busting.

Finally, all three businesses outlined in this article have dividend yields of 3% or higher to provide you with steady or rising passive income while markets whipsaw less prepared investors.

MCD Chart MCD data by YCharts

Safe-Harbor Stock No. 1: McDonald's (MCD - Get Report)

Here's an interesting fact about McDonald's:

From 2007 through 2009, McDonald's stock generated total returns of 55.9% for shareholders, while the S&P 500 had total returns of -15.9%.

McDonald's is the most recession-resistant Dividend Aristocrat. The company's earnings-per-share through the Great Recession are shown below to illustrate this point:

  • 2007 earnings-per-share of $2.91
  • 2008 earnings-per-share of $3.67
  • 2009 earnings-per-share of $3.98

McDonald's tends to do well during difficult market times. The last six months have been no exception, with McDonald's is up 21%, while the S&P 500 is down 11%. That's out-performance of over 30 percentage points in six months.

Why does McDonald's tend to do well during difficult economic times? Because the company is one of the cheapest fast food options available. When times get tough, people often trade down. Someone who would normally go to "dine in" restaurant with a $10 to $15 price point per person may trade down to a lower priced option. When people think low-priced fast-food, they think McDonald's.

McDonald's is a known commodity. When you order a Big Mac, you know what you are getting. The company has over 36,000 locations all around the world. Surprisingly, McDonald's generates more income in Europe than in the United States.

The company is currently offering investors a 3.1% dividend yield. The company has paid increasing dividends for 39 consecutive years -- making it very likely that shareholders will see rising dividend income from McDonald's over the next several years, regardless of what the market does.

PEP Chart PEP data by YCharts

Safe-Harbor Stock No. 2: PepsiCo (PEP - Get Report)

Despite PepsiCo's name, the company generates more income from its Frito-Lay and other food brands than from its drink brands.

In total, PepsiCo has 22 brands that do more than $1 billion a year in sales. When looking for safe-harbor stocks, it's important to find businesses that have a history of growing through recessions.

The company has a strong brand based competitive advantage. PepsiCo spends nearly $4 billion a year on advertising. The company's large size makes it difficult for competing brands to match PepsiCo's advertising budget. 

PepsiCo's start can be traced back to 1893, when the first Brad's Soda (Pepsi soda was named Brad's soda until 1898). In 1965, Pepsi acquired Frito-Lay to become PepsiCo. The company has paid increasing dividends for 43 consecutive years -- growing its dividend regardless of recessions, turbulent markets, or any other economic instability.

PepsiCo performs well during recessions because the company sells consumer food and beverage products whose low prices cause them to be in demand regardless of the overall economic climate.

PepsiCo's earnings-per-share throughout the Great Recession of 2007 to 2009 are listed below to show the company's stability through recessions:

  • 2007 earnings-per-share of $3.34
  • 2008 earnings-per-share of $3.21
  • 2009 earnings-per-share of $3.77

PepsiCo's earnings-per-share experienced only a minor dip through the worst of the Great Recession. The company actually hit a new earnings-per-share high in 2009 while many other large corporations were struggling to stay profitable.

PepsiCo currently offers investors an above-average dividend yield of 3%. The company's underlying businesses remain healthy as it continues to build its brand portfolio. PepsiCo is ranked in the Top quartile of long-term dividend stocks using The 8 Rules of Dividend Investing, thanks to its above average dividend yield, stable business model, and strong competitive advantage.

WMT Chart WMT data by YCharts

Safe-Harbor Stock No. 3: Walmart (WMT - Get Report)

Walmart is well known for its "everyday low prices." The company is by far the largest discount retailer in the world.

Walmart generated $484 billion in sales over the last 12 months. Sales for several of the company's well known peers over the same time period are listed below:

  • Costco has sales of $117 billion
  • Amazon has sales of $101 billion
  • Target has sales of $74 billion

All three of these companies combined do not come close to matching the sales of numbers of Walmart. Not only does Walmart have more sales, it also has the highest profit margin (at just 3%) of all the businesses above.

As the leader in discount retail, Walmart is a safe-harbor stock when the economy threatens to contract. Take a look at Walmart's earnings-per-share over the Great Recession of 2007 to 2009:

  • 2007 earnings per share of $3.16
  • 2008 earnings per share of $3.42
  • 2009 earnings per share of $3.66

The company managed to grow its earnings per share each year through the Great Recession. From 2007 to 2009, Walmart had total returns of 19.1% versus -15.9% for the S&P 500.

Walmart stock currently has a dividend yield of 3.2% -- well above the S&P 500's current dividend yield of 2.3%. Better yet, the company has paid increasing dividends for 42 consecutive years. It is very likely that Walmart continues to reward investors with rising income over the long run.

What makes Walmart stock an especially compelling purchase right now is its low valuation. The company is trading near all-time dividend yield highs.


This article is commentary by an independent contributor. At the time of publication, the author held positions in WMT, PEP, and MCD