Recession Proof US Shares worth researching Part 3

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Recession Proof US Shares worth researching Part 3
Credit: © Reuters.

As in Part 1 & Part 2 of this series.

The shares listed below meet the following criteria:

  • Low probability that the dividend is at risk
  • Paid dividends for more than 20 years
  • Average annual dividend growth is more than 5% for the last 20 years
  • Growing Dividends (more than 5% last year)
  • Dividend Yield between 2.0% to 7.5%
  • Must have generated free cash flow 7 out of the last 10 years
  • Increased or at least maintained its dividend through the last financial crisis between 2007-09
  • Current dividend is above its 5-year average yield (could indicate the share is undervalued)
  • Dividend Pay Out Ratio is less than 75% (Indicating the company is retaining sufficient capital for re-investment)
  • Average return during the 2007-09 recession was equal to or higher than the S&P 500
I will not discuss the benefits of staying in or moving out of the Share Markets during market downturns as there is plenty of research available on this subject. However here is an interesting graph I found on Charles Schwab (NYSE: SCHW ) website that shows the duration and gains / losses of bear and bull markets.

I am a firm believer in staying invested in dividend growth shares during market down turn cycles. I also believe in investing in companies, not markets. Year to date my dividends (and income) have increased in spite of a market correction. If you are selling shares to fund your retirement then you should always have about 3 years of expenses invested in cash-like investments so that you can ride out market down turns without having to sell shares when the prices are low. In fact, you should try to have ready cash available to buy Dividend Growth shares when the market is down. You will then get a higher dividend yield as well as benefiting from the price increase in the stocks when the market recovers.

Here are the next 5 shares I believe are worth researching as potential Recession Proof Shares to invest in.

Ticker Name % Above 5-Year Average Dividend Yield Dividend Yield 1 Year Dividend Growth Uninterrupted Dividend Streak (Years) Recession Dividend Recession Return % Annual ROR forecast next 2 years

ADM Archer-Daniels-Midland Company (NYSE: ADM ) 2.00% 2.70% 6.70% 27 Increased -21.00% 21%
IBM International Business Machines (NYSE: IBM ) Corporation 49.00% 5.20% 7.30% 23 Increased -28.00% 25.00%
HSY Hershey Company (NYSE: HSY ) 14.00% 2.70% 6.10% 29 Maintained -30.00% 17.00%
PEP PepsiCo (NASDAQ: PEP ) 15.00% 3.20% 7.00% 27 Increased -35.00% 10.00%
VFC V.F. Corporation 4.00% 2.40% 12.40% 29 Increased -39.00% 7.00%

A brief summary on each company follows

ADM - Archer-Daniels-Midland Company. Has an A credit rating. Founded in 1898 The company transports and processes corn, oilseeds, wheat, and other commodities into products for food, beverage, animal feed, chemical, and energy uses around the world.

IBM - Needs no introduction. Has an A credit rating. IBM recently made a large aquisition in Red Hat. Share prices have dropped significantly due to underperformance. IBM may be a stable company but recent history and forecasts are not exciting.

HSY - Hershey Company - Founded in 1894. Has an A credit rating. Manufactures confectionary products. Sells them under the following brands: Hershey's, Reese's, Kisses, Jolly Rancher, Almond Joy, Brookside, barkTHINS, Cadbury, Good & Plenty, Heath, Kit Kat, Lancaster, Payday, Rolo, Twizzlers, Whoppers, York, Scharffen Berger, Dagoba, Ice Breakers, Breathsavers, and Bubble Yum brands, as well as under the Golden Monkey, Munching Monkey, Pelon Pelo Rico, IO-IO, Nutrine, Maha Lacto, Jumpin, Sofit, SkinnyPop, Oatmega, Paqui, and Tyrrells brands. A healthy company with safe dividends.

PEP-PepsiCo. Pepsi-Cola and Frito-Lay merged in 1965 to form PepsiCo. Has an A+ credit rating. The company has the following brands: Lay's, Pepsi, Tropicana, Quaker Oats, Gatorade, Naked Juice, Aquafina, Lipton, Doritos, Tostitos, Mountain Dew, Ruffles, Cheetos, and Sierra Mist. Pepsi is the largest Food and Beverage company in USA, Canada, UK, Russia and is second largest in Mexico. The combination of strong brands and mix of beverages and snacks give Pepsi a wide moat. I will do a deep dive into Pepsi in the near future as it is another great Dividend Growth investment to consider.

VFC - V.F. Corporation. Founded in 1899. Has an A credit rating. Is a leading global lifestyle apparel maker in the outerwear, footwear, denim, backpack, luggage, accessory, sportswear, occupational, and performance apparel categories. 40% of sales are outside US making it a good global investment. The company's strong brands give it a good moat.

The shares discussed in this series are a sample of the US shares that could outperform the S&P 500 index during a market down turn. In the next and final article, I will run a back test to see how these 15 shares would have performed compared to the S&P500 had they been used to construct an equally weighted portfolio 20 years ago.

Disclaimer: Please note that I am not a Registered Financial Planner. The articles I write are based on my own personal research and for my own use and is not to be construed as financial planning advice. At all times readers are urged to exercise caution when investing in any financial instruments, to do their own research. Past performance is no guarantee of future returns.

Follow @Bruce Ingram

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