The news media is abuzz with increasing chatter about the U.S. economy and whether it's falling into a recession. That can be a scary thought; recessions usually mean companies have a harder time making money, which is bad for consumers, companies, and stocks.
Remember, though, that just because the news media talks about a recession doesn't mean it's imminent. Recessions are a normal part of the economy's ups and downs, but nobody can predict when they will happen or exactly how severe they might be.
Investors worried about a recession can take steps to prepare for any potential hardships by focusing on high-quality stocks of businesses with a history of successfully navigating economic rough waters.
For example, these industrial stocks are core contributors to the economy and have diverse businesses, healthy balance sheets, and competitive advantages that have allowed them to pay and increase their dividends through multiple recessions.
Consider buying and holding these three top dividend stocks to feel confident in your portfolio no matter what happens.
1. Chevron
Oil and gas companies are generally susceptible to commodity prices, which can fall during a recession and hurt profits. Yet Chevron(NYSE: CVX) has paid and raised its dividend for 37 consecutive years. That includes the financial crisis in 2008-2009 and the pandemic, during which oil prices went briefly negative for the first time.
Chevron's business is diverse; it explores for oil and gas deposits, extracts them, and refines them into products it sells. This helps balance things out; falling oil prices hurt its exploration business but boost profit margins in refining.
The dividend yields 4.4% today and is financially rock-solid. This year, Chevron will pay out $6.52 per share in dividends while earning an estimated $12. That's plenty of coverage, requiring a substantial collapse in profits to threaten its affordability.
The balance sheet is a tremendous safety net, too. The debt-to-equity ratio is near its lowest in a decade, and its AA credit rating is among the highest on Wall Street.
Recessions are temporary, but Chevron is a fixture in supplying the world's energy. It has proved it can handle challenges, including unprecedented negative commodity prices. Investors can confidently hold the stock and collect that dividend check.
2. Illinois Tool Works
Diversification reduces investment risks, and it works similarly in actual businesses. Illinois Tool Works(NYSE: ITW) has earned legendary Dividend King status by raising its dividend for over six decades, a streak still going today.
How? Illinois Tool Works diversifies itself across many industries, including automotive, food equipment, testing and measurement, electronics, welding, specialty chemicals, construction products, and more. So, some end markets can carry the water when others struggle.
As a result, Illinois Tool Works rarely experiences enormous swings in revenue; sales haven't declined more than 26% in a year, which came during the pandemic peak.
And the dividend marches higher. The company's dividend growth streak spans America's past eight recessions. Illinois Tool Works is still in great shape to continue raising that payout. The company will pay $5.60 per share in dividends this year, which is nowhere near the $10.18 analysts believe it will earn. And the company has an A+ credit rating, comfortably within investment grade.
The stock is a slow and steady grower investors can depend on. Analysts believe Illinois Tool Works will raise earnings by the mid to high single digits over the long term, and the dividend currently yields 2.3%. Investors are poised to enjoy consistency that will lift their portfolios over time.
3. Genuine Parts
Most industrial companies struggle during recessions, but Genuine Parts Company(NYSE: GPC) is an exception. Its revenue has never dropped more than 10% in a year!
That makes it a legendary dividend stock, having raised its payout for 68 consecutive years. Genuine Parts is a leading worldwide distributor of replacement automotive and industrial parts. Most consumers know the company for its NAPA Auto Parts retail brand, which has thousands of stores.
Vehicles always need repairs and maintenance. And consumers are more likely to hold on to their old vehicles longer during recessions, which is why the company always does well.
Genuine Parts has steadily grown for decades, keeping the dividend safe despite annual increases. It will pay $4 this year, less than half its estimated 2024 earnings of $9.37. That massive cushion helps ensure the dividend's safety, given how stable revenue has proved over the years. The company also maintains an investment-grade BBB credit rating.
Today, vehicles last an average of 12 years, up from nine in 2000. Since the pandemic, new vehicles have become incredibly costly, motivating car owners to hold on to old vehicles longer. This bodes well for Genuine Parts' long-term prospects. Investors can count on it to continue delivering slow and steady growth.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends Illinois Tool Works. The Motley Fool has a disclosure policy.
