Best Recession-Proof Dividend Stocks for 2022

Inflation is on the rise. That's obviously no secret. And what I oftentimes see investors do whenever inflation is rising is they'll put less value on dividends, because they tell themselves that if the inflation rate is either the same or even higher than whatever dividend yield they're collecting, then what's the point of even owning that dividend stock in the first place.

Because the dividend is just gonna get canceled out by the inflation. Or maybe even worse, you actually take a loss on that investment if you're just thinking about the dividend. That's the keyword there, though, right? What these dividend critics oftentimes overlook, or I would say that they conveniently ignore is the fact that a good company will also see their stock price go up over time.

And so a dividend is just a nice added bonus on top of what you're already making through your investment. So in that sense, you can think of a dividend as actually a great hedge against inflation, or at least a great tool to combat it and to lower the impact that it would otherwise have on your portfolio. 

So I think dividends are a great thing to have during rising inflation. However, for all of that stuff to work out in our favor, we need to have good solid companies that can perform well even during a recession, even during weak economic times, so that they don't have to cut their dividend and so that they don't suffer any long term negative effects on their business. 

So in today's article, I'm going to give you four different industries that I think will perform relatively well better than other industries during the next recession. And I'm gonna give you guys 4 dividend stock and in case you don't like them, I'm also going to give you an alternative stock picks as well. So it's, it's going to be eight different dividend stocks in today's article,

The Four Industries

First Industry

Alright, so running through the industries, the first industry we've got is utilities, because even during difficult economic times, there tends to still be plenty of consumption and demand for electricity, gas, water, and even waste management, which leaves utility companies performing relatively well compared to the rest of the market. 

Second Industry

For industry number two, we're gonna go with healthcare since people don't just magically stop needing medicine or other health services during a recession. Granted, they may try to avoid certain procedures if they cost too much. But at the end of the day, if you're trying to limit your spending, you'll likely have your own health at the top of your priorities list during difficult economic times, and certainly above non-essential expenses like leisurely activities or luxury items. 

Third Industry

For industry. Number three, though, I'm gonna go with consumer staples, because just like you need your basic medicine, you're also going to need your basic essentials and household supplies, your cleaning supplies, your food, your hygiene products, and so on. 

Fourth Industry

And finally, for industry number four, I'm gonna go with discount retail, just like you need your consumer staples, you still need a place to actually purchase them. And during difficult economic times, you're going to be much less likely to shop at the mall or even slightly higher-end grocery stores like Albertsons or whatever you want to call it. But instead, you're going to go to wherever you can find the cheaper price. 

UTILITIES DEVIDEND

The first industry, that's going to be utilities. And normally I would go with NextEra Energy ($NEE). That's actually my alternative pic for this industry. I've always found them intriguing for various reasons.

First of all, they're the largest utility company by market cap in the entire world at over $155 billion, versus the next closest competitor in Duke Energy all the way down to just 81 billion so almost half the size. 

And because of their utility, they benefit from a combination of regulated rates, along with long-term contracts on their electricity that leaves them with more dependable cash flows over the long term. But the great thing about NextEra is that they also have a renewable energy segment that when combined with their subsidiaries and partnerships.

It's turned NextEra into the largest wind and solar energy producer in the entire world, which also helps bring in growth for what you would otherwise expect to be a typical low-growth utility. In fact, over the past 10 years, NextEra has averaged EPS growth of almost 10%, while the other top 10 power companies only achieved around 3% growth during the same time.

And the future looks just as bright. This past year they increased the renewable contracts backlog by around 25% which according to ally market research the global renewable energy market is expected to reach nearly $2 trillion by 2030.

Alternative

This is why my pick for this industry is actually next eras renewable subsidiary called Nextera Energy Partners($NEP). Again, NEE is a great choice too and I'm picking them as my alternative.

But NEP is a higher growth with a larger dividend NextEra Energy pays around a 2% yield. While the next era Energy Partners pays over 3.5% with a 15% growth rate to go along with it. 

Sales even climbed during the 2020 recession by a double-digit percentage and still managed to climb again in 2021 by another 7%. It's expected to skyrocket by over 40% this year.

And then still do double digits in 2023 as well that's phenomenal growth. Unfortunately, both stocks are never really cheap. And I actually think that they might go down more in the short term before climbing higher over the long term.

Just because of rising interest rates that will hurt Nextera's profitability, since they do rely so heavily on investments and debt and acquisitions. But considering that NEP is already near the midpoint of its 52-week range if it was to fall any more from here, and especially if it were to crash all the way down to the lows.

I just think both sides would be an amazing pickup for the long term, considering the stable demand for electricity, the huge growth in renewables and the really nice dividends that I don't think will go away anytime soon, even during a recession. By the way, Nextera energy is in a very similar position.

HEALTH CARE

Industry number two, that's going to be healthcare. And for this one, I'll start with the Johnson and Johnson($JNJ) is primary pick whose stock has been suppressed over the years because of lawsuits and controversies leaving it up only about 35% In the past five years. 

But they have numerous household brands and products across various sectors that people will pretty much always be buying, for example, they have pharmaceuticals like Benadryl and Tylenol, people still get headaches during recessions probably even more. So. There's health care and hygiene like bandaid Listerine, and various lotions and powders still gotta keep those teeth clean during difficult times. 

There's Vision Products like active you, you still got to be able to see there's tons of medical devices and admittedly those sales probably will go down during a recession because hospitals do tend to cut their budgets during difficult times. But I just think that they're so well diversified. 

I mean, they even have a V shot for the pepperoni, which also admittedly makes way less money than Pfizer and moderna because of controversies, but it's still been able to generate billions of dollars for them in sales to anyway, the point is that because people still need health care products and services during all kinds of different economic conditions, j&j sales have been able to actually increase slightly during the 2020 recession.

They increase again by a whopping 14% during a weak 2021 year, and they are still expected to grow by another 6% and 2% in each of the following two years, respectively, as well. And then the biggest benefit of all with with JNJ Is this super attractive dividend yields about 2.5%. 

With a payout ratio of less than 50%. And an absolutely massive growth history of almost six decades in row. You can slice it however, you know, however way you want. But no matter how bad the economy gets, that dividend is almost certainly not going to get cut during the next recession. 

Alternative

In this category, specifically, I actually prefer Merck ($MRK), and I'm going to put this as my alternative pic, just because I do think that most people would be better off with a safer option like JNJ. But for anyone wanting a little more risk with a higher paying dividend like I do, then Merck is also a great choice. 

They're a very large biotech pharmaceutical company. And I've been buying it recently for the really nice dividend that yields over 3.5% with a still very stable business overall, lots of blockbuster drugs, and a huge pipeline for the future.

To top it all off the stock is even cheap, currently sitting in the bottom half of its 52-week range with a valuation that is around 50% cheaper than the sector. Both are solid picks, in my opinion, as long as you're thinking long-term.

CONSUMER STAPLES

The next industry we're gonna go with consumer staples and number three, and if you thought that JNJ had a huge dividend growth history, and consider this next one, because it's even larger than that, and that is of course, Procter and Gamble($PG) as my primary pick who has increased their dividend by a whopping 65 years in a row that is massive.

And the way they've been able to do that is by selling some of the most popular brands and products in the world. You're talking Charmin toilet paper, bouncy towels, gain tide and Dawn detergents, Gillette shaving, crest and oral be dental for breeze.

And downy deodorizer and fragrance Pampers diapers Always in Tampa, you know what, you've got NyQuil, you've got head and shoulders, you even have Duracell batteries. You've got Pringles chips and EIMs dog food. I mean, the list just goes on and on. 

And that's resulted in massive sales for them of over 70 billion per year. And they still managed to grow by 5% during the 2020, recession, another 7% in 2021, and are still expected to grow by about 5%. A year after that as well, even their profits as EPS are expected to grow more in the next five years than the previous five. The stock is not cheap, valuation-wise.

But it is at least slightly below the midpoint of its 52-week range. And when you add up all those different household brands with an absolutely fantastic dividend, I just think it makes sense for a pretty solid long-term stock. Granted, the dividend yield is a little low at 2.4%. But if you want something that's just a little bit higher, with still a very large growth history, and some very popular brands to go along with it.

Alternative

In this category, I would also take a look at PepsiCo($PEP), which is a stock that I own myself, and that'll be our alternative pick, it's trading pretty high. But it also is at least near the midpoint of its 52-week range, leaving the dividend pretty attractive at a 2.8% yield with a massive almost five decades in a row of growth. 

Both stocks I think are solid, for long-term options, especially because of their giant size that allows them to acquire smaller competitors and remain dominant, which they've done many times in the past, it's really helped them maintain their market share.

DISCOUNT RETAIL

The fourth and final industry is Discount Retail. We just spoke a lot about household goods and groceries. But of course to have those things you first need to buy them from a retailer and so look at low-cost retail options. I actually really wanted to go with Amazon above anything else just because even during the recession, I think a ton of people will be using online shopping to look for cheaper prices.

Amazon is really notorious for providing but because this is a more dividend-focused article, I actually going to go with a company that offers the best of both worlds low-cost brick-and-mortar retail combined with low-cost online shopping. And for that I'm going with Walmart ($WMT). 

And when you look at it, Walmart owns and operates around 10,500 different stores across 24 different countries, with many of them being almost warehouse-like in size, so practically everything you might need. And many of those products are even discount brands that are heavily relied on during weak economic times. 

There are just very few companies out there that can rival Walmart's massive size and their economies of scale that allows them to charge such low prices. And they also utilize that physical footprint to offer online pickup and returns since close to 90% of the US population lives within 10 miles of physical Walmart stores. 

Speaking of online sales, though, Walmart is probably the biggest competitor to Amazon here in the States, as their website already sees about 100 million unique visitors per month. They have the second most online shopping market share in the US only behind amazon, because of the global health issue that really sped up, you know, the adoption of E-commerce, Walmart's online sales have more than doubled since 2020,

Which is pretty impressive. Speaking of sales, their total revenue grew by 7% during the 2020 recession, and another 3% in every year following granted 3% is pretty low growth. But this is a company that already does over half a trillion dollars in sales, that's half a trillion.I mean, what other companies can match that size?

Anyway, with a company like this, you're obviously going to get some very nice dividends, the stock is not cheap. It's currently up over 100% in the past five years and only around 5% away from an all-time high. But it's not really a stock that dips very much. And despite that, you still get a fairly decent dividend of over 1.5%. It's not that big, but it has at least been grown for almost five decades in a row, which is very, you know, reliable.

Alternative

If you're looking for something a little larger, though, then you might want to consider my alternative pick, which would be Home Depot($HD), which is also up over 100% in the past five years, but a most recent dip of close to 25% has left their dividend yield a bit higher at around 2.4% with some really nice growth metrics on it.

Their payout ratio of less than 50% 13 years of consecutive growth and a super nice growth rate of over 18%. That's pretty close to 20% growth rate that is really good. And the nice thing is that during a recession, a lot of people tend to do many projects themselves to save money. 

And most of the time, they'll have to shop at places like Home Depot for many of the resources and tools that they need. Not exactly recession proof but I think that dividends will likely stick around and sales will probably be more stable than most other companies even during some difficult times.