The long-term health of the company is very strong. Because of its strong brands, profitability, dividend track record, and growth potential, Hormel ranks very highly using the 8 Rules of Dividend Investing. Hormel recently raised its dividend for the 51st year in a row. It joins many other stocks on this list as among the 19 Dividend Kings.
Its next quarterly dividend will be its 355th dividend payment to shareholders. And, its dividend growth is very impressive. For example, last year's increase was a 17% raise. Hormel has a 2% dividend yield, which is in-line with the average yield in the S&P 500. However, it makes up for an average dividend yield with very high dividend growth.
Recession Proof Stock #6: Consolidated Edison
ConEd (ED) makes the list because it is a utility stock. Utilities are among the best performers when a recession hits because their businesses are hardly affected.
Everyone needs to keep the lights on, no matter the condition of the economy. Plus, the utility business model is augmented by being a regulated industry. ConEd receives periodic regulatory approval to raise rates. Along with population growth, this virtually ensures a modest amount of revenue growth each year.
This provides utilities with consistent profits from year to year, no matter what. ConEd operates mostly in the Northeast. It has over 3 million electricity customers in New York.ConEd had earnings of $4.15 per share in 2016, up 2% from the previous year.
Trends improved as 2016 drew to a close. Earnings, as adjusted for non-recurring items, rose 13% in the fourth quarter. For 2017, the company forecasts earnings, as adjusted, to be in a range of $3.95 to $4.15. The middle of the guidance would represent a 2% growth rate from 2016.
One potential risk for ConEd moving forward is rising interest rates. Utilities have relatively high levels of debt in their capital structures. Higher interest rates are likely to increase ConEd's cost of capital. Fortunately, the company has a strong financial condition. ConEd holds a 'BBB+' credit rating from both Standard & Poor's and Fitch. It receives a stable outlook from all three major credit rating agencies.
And, earnings should remain stable, and grow modestly each year. A reasonable assumption for a large utility's long-term earnings growth is 1% to 2% above the rate of GDP. Utilities are a highly saturated industry, but can still grow from higher rates, population growth and cost improvements.
Its comfortable financial position means the company should continue to generate more than enough earnings to support its dividend. ConEd has increased its dividend for 42 consecutive years, including a 3% raise for the first-quarter 2017 payment.
In fact, ConEd is the only electric utility included on the list of Dividend Aristocrats. Investors can expect the company to raise its dividend at or near the rate of earnings growth, around 2% to 4% per year. The stock has a current annualized dividend yield of 3.5%.
Recession Proof Stock #7: McDonald's
McDonald's (MCD) is a fast food goliath, with 36,000 restaurants, in over 100 countries around the world. Over the past few years, McDonald's has embarked on a major turnaround. The company's sales had fallen as it lost customers to competitors in the quick-service restaurant space.
In response, the company re-dedicated itself to renovating its restaurant, closing under-performing locations, and lowering costs. McDonald's also moved to more quickly respond to what its customers wanted. Specifically, McDonald's unveiled All-Day Breakfast, and a reshuffled value menu.
This renewed focus paid off. In 2016, earnings-per-share rose 13%, or 16% when excluding the impact of foreign exchange translations. Going forward, McDonald's recently announced a new three-year global growth plan, to continue its momentum.
Among its strategic initiatives, are improvements in quality, convenience and value. This means a continued emphasis on improving its ingredients, reducing customer wait times and keeping prices low. In addition, McDonald's will be enhancing its digital capabilities in a big way.
Inside the restaurant, McDonald's will be rolling out kiosks to place orders. This will allow for greater convenience and personalization for its customers, and means no longer standing in line. The food is brought directly to the table.
Outside the restaurant, McDonald's has created an app that customers can use to place orders, while skipping the drive-thru line. Instead, customers will be able to choose curbside delivery, which will help speed up the ordering process. McDonald's expects mobile order and pay functionality in 20,000 restaurants by the end of 2017.
These are all positive steps to restore traffic. And, McDonald's is a good pick for a recession. Consumers tend to scale down their spending on eating out when the economy enters a downturn. In fact, McDonald's was a very strong performer during the Great Recession. In 2008, McDonald's earnings-per-share grew 26%. It followed this up with 8% growth in 2009.
As a result, McDonald's is a natural pick for a recession-resistant portfolio. It is also a steady dividend stock. McDonald's is a Dividend Aristocrat. It has raised its dividend every year since it made its first dividend payment to shareholders in 1976. It has a current dividend yield of 2.9%.
Recession Proof Stock #8: Wal-Mart
Outside the utility sector, Wal-Mart (WMT) is arguably the most defensive, recession-resistant stock an investor can find. Wal-Mart and McDonald's were the only two stocks in the Dow Jones Industrial Average, that saw their share prices increase in 2008. There is good reason for this-investor demand for these stocks actually rises when economic times are tough.
Wal-Mart is the world's largest retailer. It is a discount retailer, and thanks to its unparalleled retail distribution system, it is very hard for competitors to match its prices. The company actually benefits from economic uncertainty, because consumers typically scale down their spending during recessions.
Instead of shopping at higher-priced department stores, consumers will often shift down to discount retail. Consider Wal-Mart's performance during the Great Recession:
- 2007 earnings-per-share of $3.16
- 2008 earnings-per-share of $3.42 (8.2% growth)
- 2009 earnings-per-share of $3.66 (7% growth)
- 2010 earnings-per-share of $4.07 (11% growth)
Wal-Mart sailed through the last recession. However, Wal-Mart's earnings have declined in recent years, which has forced the company into a turnaround. Going forward, Wal-Mart is making major investments in its e-commerce platform, to better compete with online retailers.
Wal-Mart expects to spend around $11 billion during the current fiscal year, to continue renovating its physical stores, and building its e-commerce business. This investment is possible because Wal-Mart is highly profitable. In the last fiscal year, it had profit of $13.6 billion. Elevated spending will likely result in another year of declining earnings.
That said, the investments are already paying off-for example, Wal-Mart's e-commerce sales rose 29% last quarter. Total companywide sales increased 3% on a currency-neutral basis, to $497 billion. Wal-Mart generated $31.5 billion of operating cash flow last fiscal year. It returned $14.5 billion to shareholders, in dividends and share buybacks.
Wal-Mart stock has a 3% dividend yield, and the company has raised its dividend for 44 years in a row.
Recession Proof Stock #9: Procter & Gamble
Similar to Wal-Mart, P&G (PG) is also engaged in a large turnaround. P&G's growth slowed down over the past several years. In response, it has gone through a massive restructuring of its brand portfolio. The company decided to sell off low-growth brands, so that it can focus on its higher-growth product categories.
Its major transactions include the sale of the Duracell battery business to Warren Buffett's Berkshire Hathaway (BRK.B) for $4 billion. Later, P&G divested its beauty brand portfolio to Coty (COTY) for $12 billion.
Going forward, the company will be much more streamlined and focused. Its portfolio will revolve around 60-plus brands in 10 categories. It has retained most of its flagship brands, including Tide, Gillette, Old Spice, Charmin, Bounty and more. The best-performing category for P&G right now is health care. Segment sales rose 7% last quarter.
The over-arching goal of the massive round of divestitures, was for P&G to become more efficient. The early results are encouraging--P&G's currency-neutral earnings increased 9% last quarter.
For the full fiscal year, P&G expects currency-neutral sales to increase 2% to 3%. Cost cuts and share repurchases are expected to contribute to growth--P&G expects fiscal 2017 earnings to grow in the mid-single-digit range.
P&G's strong brands and highly profitable business model allow the company to pay steady dividends. It has paid a dividend for 127 years in a row, ever since the company was incorporated, all the way back in 1890. And, it recently raised its dividend by 3%. This was an acceleration from the previous year's 1% dividend growth rate, reflecting the success of the huge portfolio restructuring.
P&G has now come through with dividend hikes for 61 years in a row. It is a Dividend King. On an annualized basis, P&G's new dividend rate is approximately $2.76 per share. This amounts to a 3% dividend yield.
Recession Proof Stock #10: General Mills
General Mills (GIS) is a food giant. It has a large portfolio of packaged and refrigerated foods, including several cereal brands, as well as Yoplait, Pillsbury, Betty Crocker and Progresso. The company has encountered challenges recently, due to declines in its cereal and soup businesses. General Mills' cereal business is among its most important segments.
It seems that consumers are moving away from cereal and canned soup. Also, its yogurt business is under intense competitive pressure from Greek yogurt brands like Chobani. This caused General Mills' sales to decline 6% in fiscal 2016. Excluding the impact of the strong U.S. dollar, currency-neutral revenue fell 2% for the year.
Conditions have not improved this year. Last quarter, currency-neutral sales fell 5%. Sales have also fallen by 5% over the first three quarters of fiscal 2017. Through the first nine months of fiscal 2017, sales in the North America Retail segment fell 8%, due mostly to declines in meals and baking foods, and yogurt. Segment-operating profit fell 5% in this time, due to lower volumes.
General Mills is hoping to fuel a sales turnaround with natural and organic foods. The company has significantly built this business in recent years, largely through acquisition.
For example, in 2014 General Mills acquired natural food company Annie's, for $820 million. Led by Annie's, General Mills' natural and organic portfolio is growing at a double-digit rate. It is expected to reach more than $1 billion in sales this fiscal year.
In the meantime, the company is highly profitable. Stability is a benefit of operating in the food industry. This allows General Mills to reward shareholders with steady dividends each and every year. General Mills has made dividend payments to shareholders, without interruption, since 1925.
And, it has increased its dividend for more than a decade. General Mills has a current dividend yield of 3.3%. It is a Dividend Achiever, which is a group of 265 stocks with 10-plus years of consecutive dividend increases.
You can see the full Dividend Achievers List here.
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