SPECIAL REPORT The Top 7 Stocks for 2024

7 Cash Cow Stocks for Recession-Resilient Dividends

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  • Aflac (AFL): Insurance is a very sticky business, even if it’s supplemental.
  • Johnson & Johnson (JNJ): This well-diversified business offers some of the safest dividends in the market.
  • Waste Management (WM): The stock’s historical performance reflects the safety and consistency of the waste business.
  • Continue reading for the complete list of cash cow stocks to buy!
Cash Cow Stocks - 7 Cash Cow Stocks for Recession-Resilient Dividends

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The rally we’ve seen in previous weeks has given investors a breath of fresh air, but I believe volatility is likely to persist over the next few months. With the Federal Reserve committed to further rate hikes, turbulence could easily return to the markets later this year. While I don’t foresee an imminent recession, taking some risk off the table seems prudent. Many big tech names have seen stellar gains over the past decade but now look vulnerable to plateauing or even pulling back if recessionary winds start blowing.

With that in mind, taking profits from overvalued big tech stocks and redeploying that capital into more stable dividend payers or more under-appreciated growth stocks is a decent idea. I’ll be focusing on the former.

Although these stocks may not capture headlines like the tech darlings do, their steady payouts and defensive business models make them appealing options during uncertain times. By favoring these dividend stocks over inflated big tech names, you can generate safe and consistent income while waiting for lower valuations for higher-growth stocks.

Aflac (AFL)

the Aflac (AFL) logo on an office building
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Aflac (NYSE:AFL) is in the business of providing supplemental insurance products. This business is generally boring, but continues to deliver steady growth, even in turbulent markets. The company posted a strong second quarter, beating earnings estimates by 14 cents per share. A key growth driver has been Aflac’s cancer insurance sales, which were up 60% in Q2 versus a year ago. The launch of Aflac’s new WINGS cancer product in the Japan Post channel in April also provided a significant boost to the company’s growth.

While economic uncertainty persists, Aflac’s supplemental insurance products remain attractive to consumers looking to protect themselves financially. The company expects to sustain momentum with the upcoming launch of a new medical product in September. Though some analysts have expressed concerns about Aflac’s exposure to currency fluctuations, the company has taken steps to reduce this risk. Given its leading market share, sticky customer base, and prudent financial management, Aflac seems poised to continue generating predictable earnings and dividends for income investors.

Notably, AFL stock provides investors with a forward dividend yield of 2.25%, rising for four decades straight.

Johnson & Johnson (JNJ)

A red Johnson & Johnson (JNJ) sign hangs inside in Moscow, Russia.
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Johnson & Johnson (NYSE:JNJ) continues delivering strong fundamental performance, posting Q2 results that beat earnings expectations by 18 cents per share. The healthcare giant’s sales grew 6.3%, demonstrating the strength of J&J’s diversified business model spanning pharmaceuticals, medical devices, and consumer health.

Key pharmaceutical growth drivers included the company’s oncology portfolio and new product launches like CARVYKTI and TECVAYLI for multiple myeloma treatment. J&J’s pipeline progress also looks promising, with upcoming catalysts across its key future assets. Meanwhile, the company’s MedTech segment grew 15% operationally, aided by the recent Abiomed acquisition.

As a sweetener, Johnson & Johnson offers a forward dividend yield of 2.9%, as well as an impressive history of 62 consecutive years of dividend hikes. Analysts believe year-end growth will come in around the 5.5% level, along with 6% earnings per share growth.

Waste Management (WM)

Image of green Waste Management (WM) branded truck in the foreground and building with Waste Management flag in the background.
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Though Waste Management (NYSE:WM) faced some revenue headwinds in Q2 from lower commodity prices, the company continues generating shareholder value through its pricing power, cost discipline, and a steady dividend. Waste collection is a resilient business, providing essential services even during economic downturns.

Waste Management boosted its adjusted operating EBITDA margin by 60 basis points in Q2 via diligent cost control and SG&A optimization. While management modestly reduced full-year revenue guidance due to commodity pricing pressures, the company still expects to deliver adjusted EBITDA growth of 5.7% at the midpoint for 2023.

Looking ahead, the company’s management team aims to expand EBITDA margins by capturing synergies from technology investments and leaning into price increases to offset inflationary pressures. With its wide economic moat and earnings per share growth projected to come in around 6-7% in 2023, WM stock offers an attractive blend of defensiveness, income and growth. It currently yields a modest 1.8%, but its distribution have increased for two decades straight.

Realty Income (O)

hand of person in a suit dangling keys with a house symbol on the ring. Windows overlooking city skyline in background.
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Despite headwinds from higher interest rates, Realty Income (NYSE:O) continues generating steady growth driven by its high-quality real estate portfolio. The company has maintained an impressive 99% occupancy rate over the past three quarters, demonstrating the durability of its properties and tenant relationships. Management expects investments to exceed $7 billion in 2023, with the company leveraging its scale and relationships to source accretive deals even in today’s capital-constrained environment.

While some investors fear a pullback in commercial real estate, Realty Income’s focus on service-oriented and low price point industries should provide resilience. Currently, O stock offers an attractive 5.4% dividend yield, with investors paying only 13.6-times forward funds from operations, with a strong pipeline of acquisition opportunities. It’s a bargain when you consider that the average analyst believes Realty Income will post 16.5% year-over-year sales growth this year and 11% next year. Some bulls believe the real estate giant’s revenue growth could come in as high as 30% by the end of 2026. Plus, even the lowest recent price target on Wall Street is $5 higher than its current price.

Verizon (VZ)

Verizon Wireless sign and trademark logo.
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Verizon (NYSE:VZ) has faced endless headwinds lately, with its stock price down nearly 20% over the past year amid concerns about subscriber losses, lead concerns and competitive pressures. Verizon did deliver a Q2 earnings beat, but it missed revenue estimates. Still, various metrics show momentum in key growth areas like fixed wireless access. Verizon added 384,000 fixed wireless subscribers in Q2, surpassing 2.3 million total, and on pace to hit its target of 4-5 million subscribers by 2025.

The company’s 5G network expansions are also paying off, with improved customer retention and higher average revenue per user. Looking ahead, Verizon expects to continue improving its 5G coverage and performance as more C-band spectrum comes online. With the stock now trading at just 7-times forward earnings, Verizon looks very undervalued considering its strong wireless network, 5G progress, and growth potential in fixed wireless broadband. For investors seeking an underappreciated telecom giant with a rock-solid dividend, Verizon checks all the boxes. The forward dividend yield with VZ stock is 7.5%, but that’s unlikely to remain stable due to price volatility.

Coca-Cola Femsa (KOF)

coca-cola bottles and cans. coke is a blue-chip stocks
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Coca-Cola Femsa (NYSE:KOF) has quietly delivered impressive growth, with Q2 revenues up 30.2%. This Coke bottling partner serves over 270 million consumers across Latin America and saw 7% volume growth in Q2, driven by Mexico, Brazil, and Guatemala.

Coca-Cola Femsa is leveraging brand strength, product innovations like low-sugar drinks, and improved distribution to gain share in growing markets. Its omnichannel Juntos+ B2B platform now accounts for 30% of revenues in its traditional trade channel. With shares trading at 17-times forward earnings and also providing a 3.7% dividend yield, Coca-Cola Femsa offers stability with untapped growth potential thanks to its leading position in an expanding region.

Analysts expect sales growth to be nearly 17.5% for all of 2023. Sales would match its current market cap in roughly 4 years, which makes KOF stock very appealing, even after its recent appreciation.

Berkshire Hathaway (BRK-A, BRK-B)

The logo for Berkshire Hathaway displayed on a smartphone screen.
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Led by the legendary Warren Buffett, Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) remains a core holding for many long-term investors, even if the stock isn’t cheap. Berkshire’s diversified business mix provides earnings power and stability across market cycles. Operating earnings grew 6.6% in Q2, aided by higher insurance investment income, though several units faced challenges like BNSF Rail and Berkshire’s housing-related businesses. Berkshire’s insurance float hit $166 billion, providing ample capital to deploy. With over $147 billion in cash, Berkshire can capitalize on market dislocations when times get tough. Thus, this is a stock to hold for the very long-term, for most investors.

Sure, it’s expensive right now, but the stock’s premium valuation is justified by the unmatched track record of Buffett and his team. For investors willing to pay up to gain exposure to his disciplines and investment acumen, Berkshire Hathaway belongs in any high-quality, long-term portfolio. Unfortunately, it does not pay out dividends directly, but holds many stocks that do.

On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.


Article printed from InvestorPlace Media, https://investorplace.com/2023/09/7-cash-cow-stocks-for-recession-resilient-dividends/.

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