3 Stocks To Buy To Avoid a Recession
These 3 stocks are recession-resistant and can outperform if a deep economic slowdown hits or a long period of stagflation occurs. Each of these companies has high dividend yields and their earnings more than cover the dividend payments. They are TotalEnergies (TTE), Verizon Communications (VZ), and Crescent Capital BDC (CCAP).
Let's look at these further.
TotalEnergies SE ADR (TTE)
This is a French integrated oil and gas company that is listed on the NYSE as an American Depository Receipt (ADR). It has good earnings growth, strong free cash flow (FCF) and a low valuation, along with a powerful buyback program.
For example, earnings are forecast to reach $12.85 this year, putting TTE stock on a forward multiple of just 3.9x earnings. Even though analysts project lower earnings for 2023, it is still cheap at a 4.55x P/E ratio. That is still a very cheap multiple.
TTE stock now has a yield of 5.47% and TotalEnergies is committed to raising its dividend by 5% annually. This assumes TTE keeps the quarterly dividend at approximately 68.83 cents per quarter or a total of $2.7532 annually.
In addition, the company has indicated it will buy back $2 billion of its stock during the first half, putting it on a $4 billion buyback run rate. That represents 3% of its $133.56 billion market value.
So investors receive a total yield, including the 5.47% dividend yield and 3% buyback yield, of 8.47%. That should help investors muddle through any kind of recession.
Verizon Communications (VZ)
Verizon is one of the largest telecom operators in the U.S. It is forecast to produce a 3% earnings growth to $5.54 per share for the year ending 2023. At $50.70 on July 8, the stock is on a forward multiple of just 9.43xfor 2022 and 9.15x for 2023.
This is significantly below its five-year forward P/E average of 11.36x based on Morningstar’s valuation page. That shows that the stock is still very cheap.
Moreover, Verizon pays a quarterly 64-cent dividend. That works out to an annual dividend payment of $2.56 per share. That gives the stock a dividend yield of 5.05%.
The quarterly dividend is likely to be raised in early September when Verizon is scheduled to next declare its dividend. This is because the dividend has risen every four quarters over the past 18 years. So, the yield going forward is likely well over 5%.
Morningstar reports that its average dividend yield over the past five years has been 4.47%. That implies the stock could rise to $57.27 (i.e., $2.56/0.0447). That represents a gain of 13% from here.
Crescent Capital BDC (CCAP)
Crescent Capital is a $491 million market cap business development company (BDC). It invests its capital solely in the debt of middle-market companies in the U.S in the secondary market. Its present dividend rate is $1.64 annually, based on a “regular dividend” of 41 cents quarterly rate. That puts it on an annual yield of 10.2% at $16.09 as of July 8.
Crescent also started paying a 5-cent special dividend in the past three quarters. That brings the annual dividend to $1.84 annually if it continues, or a yield of 11.4%.
However, it is too late to get a special dividend, since the ex-dividend date for the last one already declared is passed. It is not yet clear if the company will renew a new round of special cash dividends.
It’s best to not count on the extra 5 cents continuing if the U.S. is in a deep recession. Many of its borrowers will begin defaulting on their debt obligations. That will make it harder for Crescent Capital to keep up the extra payments.
So investors should just expect $1.64 in dividends annually for now — and a 10.2% yield, This still makes it one of the best recession-resistant stocks going forward.
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Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.
