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The Brexit could be the straw that breaks the market’s back. Today we’re going to talk about what no one wants to hear: the prospect of a recession.
Morgan Stanley (NYSE: MS) recently moved the odds of a global recession to 40% due to the Brexit, up from its previous estimate of 30%. At the same time, Deutsche Bank (NYSE: DB) raised its estimates on the chances of a U.S. recession within the next 12 months to 60%, which is the highest odds since August 2008.
The worry is that the Brexit will be ” Lehman Brothers” event. Investors were lured into a false sense of security even after Lehman failed, assuming the fallout was manageable. It wasn’t.
Now, the Brexit likely isn’t another “Lehman” event, but that doesn’t mean the ramifications won’t be far reaching. The Brexit could tip the U.K. and other European countries into recession.
And as the yield curve continues to flatten, the odds of a recession increases. The equity markets and bond markets are telling two very different stories. Stocks remain at all time-highs. Meanwhile, bonds are telling us that the global economy is slowing. In general, the bond markets tend to be more right than wrong. Stocks, meanwhile, have been held up by buybacks and monetary easing by central banks.
But central banks can’t really come to the rescue these days. They’re effectively out of ammunition, with interest rates at all-time lows in the U.S. and negative rates in Europe.
So, it just might be time to get back to the basics. That includes dividends and consumer staples that are levered to the U.S. The key is that the U.S. would be somewhat insulated from Brexit. Plus, if the world plunges into a recession, consumers will still be buying shampoo and toothpaste.
Whether or not you believe a recession is on its way, consider these safe stocks for reliable dividends and peace of mind.
Recession Stock No. 1: Clorox (NYSE: CLX)
Clorox needs no introduction, having made bleach famous. And oh what a business it’s been. Clorox having been around for over 100 years. Nonetheless, it’s now much more than a bleach company, having a portfolio of food, charcoal and home-care products businesses. Its brands include Hidden Valley, Burt’s Bees and Pine-Sol.
As a testament to Clorox’s resilience, its sales barely fell during the recession. Its 2.3% dividend yield certainly helped, as Clorox has a 38-year streak of consecutive dividend increases. Along those lines, Clorox also made our list for top dividends of July and trades ex-dividend July 25.
Recession Stock No. 2: Colgate-Palmolive (NYSE: CL)
Another company with a long history of supplying consumer stable products to the world is Colgate-Palmolive, which has been around for over two centuries. It sells products like soap, cleaner and toothpaste.
Colgate-Palmolive is paying a 2.1% dividend yield and has an impressive streak of 52 consecutive years of dividend increases. It’s one of those boring consumer staples giants that just keeps paying investors more.
What makes Colgate-Palmolive a bit unique is that it’s more leveraged to emerging markets than some of the other consumer goods companies. These markets account for half of its sales. Even amidst the financial crisis, Colgate-Palmolive saw its sales remain flat in 2009.
Recession Stock No. 3: Procter & Gamble (NYSE: PG)
Procter & Gamble is a monster in the consumer staples industry with a near $230 billion market cap. Operating in over 180 countries, it has over 20 brands that generate over $1 billion in sales each. It’s what you would call fairly diversified. It’s paying a 3.1% dividend yield and has upped its annual dividend for 59 straight years.
Priced at 22 times next year’s earnings, it’s one of the best values in the consumer staple industry and it will hold up quite nicely if a recession hits. Procter & Gamble outperformed the S&P 500 by over 20 percentage points during the height of the financial crisis of 2008.
The consumer staples are very interesting companies at this point as the global economy remains on the cusp of a major reset. Whether we see a major reset in the global economy or not, all three are safe stocks with dividends. You can invest in them today and not worry.