No one knows exactly when the next recession will occur, but that doesn't mean that investors should act as if this bull market will persist forever. And regardless of whether Hillary Clinton or Donald Trump capture the White House, the presidential election has investors wary.
Several indicators point toward another recession happening sooner, rather than later. For starters, the market is historically overvalued. The historical average price-earnings ratio for the S&P 500 is 15.6, and it stands at 24.5.
Recessions are more common than many think. The market has suffered recessions every five to seven years on average, and there hasn't been a major recession since the Great Recession, which ended in 2009, so we are due.
But whether that happens next month, next year or five years from now is anyone's guess. However, there is more at stake now, as the U.S. government has more debt than ever before.
At the end of September 2005, the government had $7.93 trillion in debt, but that had risen to $18.15 trillion by last September. These numbers aren't political. They are real.
Debt rose under President George W. Bush and under President Barack Obama. It isn't a partisan problem but a government problem, and both sides of the aisle are to blame. Could either Trump or Clinton help this problem if elected president?
It could very well be an investor problem soon, too. Remember when Standard & Poor's downgraded U.S. debt in 2011? That was back when the government had "only" about $14 trillion in debt. We are in worse shape now than we were then, and that is without a recession.
When the next recession occurs, the government will likely see its budget deficit balloon. The Federal Reserve can't lower interest rates much to stimulate the economy as we are still near all-time historical low rates.
Another severe recession could very well cause the government's debt holders to lose faith in Uncle Sam. This could cause a government meltdown.
It is important to remember that U.S. stocks aren't the same as the government.
Will McDonald's keep selling hamburgers if the government loses credibility? Absolutely.
Let's look at four dividend growth stocks that will survive and possibly thrive through the next recession and possible government meltdown.
All four stocks are strong businesses that sell low-priced items that consumers need, regardless of the economic climate or what our leaders in Washington do in terms of the debt and deficit.
This company is a good choice for investors expecting a meltdown in the U.S. government or the economy, because it specializes in shelf-stable goods. Pre-packaged items such as its namesake soup, Pepperidge Farm and V8 brands tend to sell well when people are expecting an economic crash.
Campbell Soup has a resilient business model, and it was founded all the way back in 1869.
The company also performed well the last time the U.S. economy fell into recession.
Campbell Soup's earnings from continuing operations rose 16% in fiscal 2009. Last fiscal year, it earned $2.46 a share in adjusted earnings on $8.08 billion in revenue.
As a result, the company has a proven ability to remain profitable even when times are tough.
More recently, the company has suffered a slowdown.
Campbell Soup's total sales declined 1.8% through the first three quarters of its current fiscal year. Management pointed to the soups business as particularly weak to start the year.
Since the U.S. economy rose from the depths of the recession, consumers have purchased fewer cheaper packaged-foods products and are turning to higher-priced foods such as organics. Fortunately, Campbell Soup has prepared for this shift in consumer preferences.
Campbell Soup entered the natural and organics business by buying Plum Organics in 2014.
Its other forays into this area include Bolthouse Farms and Kelsen. Kelsen gives Campbell Soup the added advantage of a significant presence in China, which is a key emerging market.
For the full fiscal year, Campbell Soup expects earnings adjusted for one-time items to rise between 11% and 13%.
Campbell Soup pays a $1.25 a share annual dividend, which provides a 2% dividend yield. The company last increased its dividend by 7.6% in 2013.
This company traces its beginnings to a single product: Gold Medal Flour, which it started selling in 1880. Since then, General Mills has built a large portfolio of popular consumer brands, including Betty Crocker, Cascadian Farms, Cheerios, Green Giant and Pillsbury.
The company has a diversified product lineup across several food categories, and it is very likely that one or more of its products can be found in virtually every household across America.
And, General Mills continues to innovate. It recently unveiled its first new cereal product in 15 years.
The advantage of investing in a food company such as General Mills is that people always need to eat. And, when the economy turns south, consumers tend to shop at grocery stores and prepare meals at home rather than eat out as much.
General Mills is a strong dividend stock. Both the company and its predecessor have paid uninterrupted dividends to shareholders for 117 years.
The company has maintained its dividend and has continued to raise its shareholder payout, even during periods of recession, increasing its distribution by 13% on average each year over the past five decades.
General Mills increased its dividend by 4.5% in March, its seventh dividend increase since 2010.
It is highly likely that General Mills can maintain its impressive dividend streak. The company is counting on expansion through acquisitions to fuel growth.
General Mills bought Annie's, a manufacturer of natural and organic pizza, pasta and snacks produced without growth hormones, synthetic preservatives or artificial flavors, for $820 million. This has helped boost revenue and earnings through the first three quarters of the current fiscal year.
Over the first nine months of fiscal 2016, General Mills' adjusted diluted earnings per share increased 10% year over year.
The Annie's acquisition gave General Mills valuable exposure to the booming organics industry, brought on by the renewed focus of American consumers on personal health and wellness. These trends are likely long-lasting, and the merger should provide significant growth to General Mills for many years.
The fast-food restaurant operator can benefit from economic downturns because consumers in distressed financial position tend to scale down their spending on dining out.
When recessions hit, consumer spending usually shifts down from casual restaurants to fast food. People tend to make every penny count during times of economic trouble.
McDonald's might not be the tastiest burger company, but it does offer low prices, thanks to its tremendous economies of scale.
Consider that in 2008, McDonald's total sales rose 3%.
During times of economic meltdown, capital preservation is key. This calls for a renewed focus on value and dividends, and McDonald's has both in spades.
McDonald's is highly profitable. The company earned $4.80 a share last year.
Even though sales declined 7.4% from the 2014, much of that was due to the strong dollar.
As a multi-national giant, McDonald's is susceptible to adverse changes in foreign-exchange rates. The rising dollar has eroded growth in international markets.
Still, McDonald's generates a lot of cash and uses it to reward shareholders with cash returns. The company reduced its share count by 5.8% last year and is a reliable dividend payer.
McDonald's stock offers investors a solid 3% dividend yield.
Furthermore, McDonald's is a premier dividend growth stock. It has raised its dividend each year since its first dividend payment in 1976, making it a dividend aristocrat.
The company is off to an impressive start this year. Comparable-restaurant sales, which measure sales at locations open at least one year, rose 6.1% in the first quarter.
Growth is being driven by new initiatives, including new menu offerings and the introduction of all-day breakfast.
This should continue to power McDonald's earnings and dividends.
Should the U.S. enter recession, Walmart may be the single-best stock to own.
Walmart's fundamentals improved significantly the last time the United States went into recession. The company increased total sales by 8.4% in 2008 and 7.3% in 2009.
Compare this with last fiscal year, when Walmart's sales declined 0.7%. So Walmart often performs better during recessions than during times of prosperity.
Like McDonald's, Walmart is a stock pick for defensiveness and low volatility.
When the economy takes a nose-dive, consumers ratchet down their spending at retailers. Rather than go to higher-priced stores, consumers typically turn to discount retailers.
Walmart is also not very volatile when compared with the broader stock market. Walmart's stock has a beta value of 0.22, which means that for every 1% decline in the S&P 500, investors can expect Walmart shares to decline 0.22%.
McDonald's and Walmart look like the the two most recession-resistant dividend aristocrats.
Walmart is a stock that investors can count on in times of trouble. The company effectively deploys its assets to generate positive returns.
Last year, Walmart's return on invested capital was 15.5%. The company is solidly profitable and generates a lot of cash, some of which it used to reward shareholders.
Walmart's stock offers a 2.8% dividend yield, and the company has increased its dividend for 43 years in a row. Since first declaring a 5-cent-a-share annual dividend in March 1974, Walmart's annual dividend has grown to $2 a share.
Future growth in earnings and dividends will be fueled by the strategic investments that Walmart is making in its people and its digital capabilities.
Last fiscal year, Walmart invested $1.2 billion in improving employee training and wages and another $296 million in e-commerce investments. These investments will power Walmart's long-term outlook.
Walmart offers investors an above-average dividend yield; low volatility and beta for stability, and a low price-earnings ratio of 15.8.
As a result, Walmart is ranked a buy and a top 10 stock using The 8 Rules of Dividend Investing.