Dividend Stocks: Essential for a Recession-Focused Portfolio

Historical Performance in Recessions

Dividend stocks like PG, JNJ, KO, and PEP have shown resilience during recessions, often rebounding to historical performance levels. Despite potential negative impacts on sales and earnings, these companies have demonstrated the ability to recover and maintain stability, driven by innovation and strong consumer demand.

"More broadly, there could be additional negative impacts to our net sales, earnings and cash flows should the situation escalate beyond its current scope, including, among other potential impacts, economic recessions in certain neighboring countries or globally due to inflationary pressures and supply chain cost increases or the geographic proximity of the war relative to the rest of Europe." --- (PG, sec filing, 2024/Q3)

"Some of those stocking dynamic dynamics I mentioned bled into April, but month-on-month, we saw strong rebound of that business, in fact, to the end of the quarter back to historical levels. And so as we look to the back half of the year, while it's been a slower start there, we're very confident that we're going to be able to bring that business back to historical norms, driven primarily by innovation." --- (JNJ, earning call, 2024/Q2)

"A bit like the U.S., we both see improved macros, actually, I think today a number of the markets came out and said they'd come out of recession from the previous quarters." --- (KO, earning call, 2024/Q1)

"We believe volume provides additional information to facilitate the comparison of our historical operating performance and underlying trends and provides additional transparency on how we evaluate our business because it measures demand for our products at the consumer level." --- (PEP, sec filing, 2024/Q2)

Stability and Sustainability of Dividend Payments

Companies like ExxonMobil, 3M, Altria, Chevron, and Colgate-Palmolive emphasize the stability and sustainability of their dividend payments through strong cash flow, debt reduction, and strategic financial priorities, ensuring consistent and growing dividends for shareholders.

"A sustainable and competitive and growing dividend is a key part of our well balanced program of sharing our success with shareholders. We know how important the dividend is." --- (XOM, event transcript, 2024/05/29)

"Our cash flow has enabled us to continue to invest in the business, while reducing net debt by $2,000,000,000 or 17% and returning $3,300,000,000 to shareholders through our dividend." --- (MMM, event transcript, 2024/05/14)

"Equity and Dividends During the first three months of 2024 and 2023, we paid dividends of $1,733 million and $1,683 million, respectively, an increase of 3.0%, reflecting a higher dividend rate, partially offset by fewer shares outstanding as a result of shares we repurchased under our share repurchase programs." --- (MO, sec filing, 2024/Q1)

""Our financial priorities remain unchanged – grow the dividend, invest capital efficiently, maintain a strong balance sheet and return excess cash to stockholders," Wirth said." --- (CVX, press release, 2024/05/29)

"As management uses free cash flow before dividends to evaluate the Company's ability to satisfy current and future obligations, pay dividends, fund future business opportunities and repurchase stock, the Company believes that it provides useful information to investors." --- (CL, press release, 2024/07/26)

Sector-Specific Analysis

Southern Company's investments in renewable technologies and growth in electricity consumption, Walmart's operational efficiencies, Pfizer's robust cash flows, and Verizon's commitment to dividends highlight sector-specific strengths, ensuring stability and growth for dividend stocks in a recession-focused portfolio.

"This approach is not just about reducing emissions, it's about positioning Southern at the forefront of the energy sector's transformation. Investing in renewable and low carbon technologies not only aligns with global climate goals, but also sets up new avenues for growth and revenue." --- (SO, event transcript, 2024/05/22)

"Starting from a demand forecast all the way through to the automation that you've seen us put into distribution centers and fulfillment centers and perishable, there's an opportunity to have that river of merchandise, which is more than 100,000,000,000 items a year, be closer to optimization." --- (WMT, event transcript, 2024/06/07)

"ANALYSIS OF FINANCIAL CONDITION, LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK Our historically robust operating cash flows, which we expect to continue over time, is a key strength of our liquidity and capital resources and our primary funding source." --- (PFE, sec filing, 2024/Q1)

"We will build on these successes in the quarters ahead, as we work to deliver value to all of our stakeholders. We will continue to execute on our capital allocation priorities by investing in the business, supporting our dividend and paying down debt." --- (VZ, earning call, 2024/Q2)

"Earnings in the electricity business will also depend upon maintaining and growing sales, considering, among other things, recent trends driving projected growth in electricity consumption including the increasing digitization of the economy and growth in data centers, an increase in industrial activity in the Southern Company system's electric service territory, and continued electrification of transportation." --- (SO, sec filing, 2024/Q1)

Dividend Yield Trends

Dividend yields are being carefully evaluated relative to equity value and reinvestment opportunities (AT&T). Verizon's dividend remains healthy with an improving payout ratio, and it boasts a 17-year streak of dividend growth, underscoring stability and reliability in dividend yield trends.

"And so, as I've said before, we'll evaluate at that time where things like interest rates stand, we'll evaluate where we are on the dividend yield relative to the equity value, and where we have opportunities for reinvestment in the business and kind of understand what we think the right combination of those are." --- (T, earning call, 2024/Q1)

"Our dividend is healthy and secure, and our free cash flow dividend payout ratio continues to improve." --- (VZ, earning call, 2024/Q1)

"We are on the 17 year of dividend growth, 17. There is I think it's only 2 other companies in S and P that has longer trajectory of increasing it." --- (VZ, conference, 2024/05/21)