Investing

15 Top Defensive Stocks for the Next Recession at Sky-High Valuations

Kimberly-Clark
> Times Earnings: 20.0
> Dividend Yield: 2.9%
> Market Cap: $48.8 billion

Kimberly-Clark Corp. (NYSE: KMB) has performed well versus mid and late 2018, but its shares are barely higher than back in 2015 and 2016. While it has a high dividend, earnings growth is projected to be higher than revenue growth and that means price hike assumptions, along with better cost management and hopefully some share buybacks. The consumer products space remains highly competitive, and the big companies may be forced into margin-lowering in-store promotional costs while they fight private label sales and while online sales continue to be away from many stores.

McDonald’s
> Times Earnings: 26.0
> Dividend Yield: 2.1%
> Market Cap: $166.8 billion

McDonald’s Corp. (NYSE: MCD) is the king of fast food, and the company has migrated to virtually an all-franchise model in which it simply sells food, makes the rules and keeps making adjustments to its menu for the franchise owners to follow. The company has committed to a policy of buying back stock and raising dividends, but at all-time highs it must be asked if the company will keep shrinking its float at more expensive prices. Does McDonald’s feel like a stock that should have nearly doubled since October of 2016?

NextEra Energy
> Times Earnings: 25.0
> Dividend Yield: 2.3%
> Market Cap: $105.3 billion

NextEra Energy Inc. (NYSE: NEE) is the former FPL (Florida Power & Light) and is now the largest utility in the country by market capitalization by a large margin, after becoming the “first $100 billion utility.” NextEra’s share price has risen 135% in five years, and it has been aggressively raising its dividend, but that aggressive appreciation has kept its dividend yield lower than most solid utilities. It remains to be seen whether renewables and other efforts can help NextEra continue meeting or beating lofty earnings growth expectations that will keep supporting dividend hikes.

PepsiCo
> Times Earnings: 23.0
> Dividend Yield: 3.0%
> Market Cap: $185.2 billion

PepsiCo Inc. (NYSE: PEP) would be in the same boat that Coca-Cola has been in, with slow revenue growth in beverages, but it has historically had the snack food business helping it along. With a new CEO, it has run into earnings growth issues at a time when revenue growth has stalled. If that growth falters, investors may feel that close to a 70% payout ratio of adjusted earnings is already asking enough of the company.

Procter & Gamble
> Times Earnings: 24.0
> Dividend Yield: 2.5%
> Market Cap: $298.3 billion

Procter & Gamble Co. (NYSE: PG) is the king of the consumer products companies, worth more than twice as much as the other three consumer products companies mentioned in this report. Now that its shares finally have stopped being range-bound as they had been for years, the stock gain of 42% in the past 12 months and gain of almost 30% year to date has raised the bar on its P/E ratio while also lowering its dividend that new investors would expect. The portfolio here is massive, but the sector remains competitive, and every competitor seems to cherish just taking 1% market share away from the great P&G.

Walmart
> Times Earnings: 22.4
> Dividend Yield: 1.9%
> Market Cap: $322.4 billion

Walmart Inc. (NYSE: WMT) is the king of U.S. retail, and its expected revenue growth may be nearing $550 billion in the next two years. Earnings growth has been slower, and Walmart has been investing handily in customer pick-ups, customer shipping, technology, online viewings and e-commerce as it seeks to keep its dominance in a world where Amazon and other online or big-box sellers keep growing. Walmart used to trade with a market multiple closer to 15 to 17 times earnings, but that has risen as its shares finally broke out above the $95 to $100 levels to above $110.