Recessions are no funny business. In fact, for many people, they can be very scary and the sole reason why some may never get into the stock market. However, you shouldn’t let the fear of a recession stop you from achieving financial independence. Instead, you should embrace them and take those opportunities to accumulate more shares of companies you love. Most importantly, you should prepare for them. We don’t know when they’ll happen, but they will. Here are my three favourite recession stocks.
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Start with this one
When I think of recession planning, I automatically think of utility stocks. That’s because utilities will continue to be relied upon for as long as humans exist. In addition, these businesses tend to generate revenue on a recurring basis. That means their revenue is very predictable. It’s these sorts of businesses that investors should gravitate toward during recessions.
Fortis (TSX:FTS) is an excellent utility company to consider. It provides regulated gas and electric utilities to more than three million customers. It currently operates in Canada, the United States, and the Caribbean. Fortis is very well-known in the financial space for its outstanding track record as a dividend payer. This stock has increased its distribution in each of the past 50 years and has already announced plans to continue raising its dividend at a rate of 4-6% through to 2028.
Another good stock to hold
Canadian National Railway (TSX:CNR) is a stock that I think all Canadians should hold. We live in a very large country. The railroad industry is likely the only reason why it was able to grow as it has. Currently, there are no other viable ways to transport large amounts of goods over long distances if not via rail. That’s the investment thesis here with Canadian National Railway. In addition, this is Canada’s largest railway company, operating from British Columbia to Nova Scotia.
Like Fortis, Canadian National Railway is a great dividend stock. This company has managed to increase its dividend distribution in each of the past 26 years. That makes it one of only 11 TSX-listed stocks to achieve that feat currently. Over the past year, Canadian National Railway stock has only gained about 1%, dividends excluded. Although that lags the broader market by a small margin, I think the stock will do better in the future. Over the past five years, it has generated a return of nearly 65%.
Rely on these companies
Banks are sure to fall during recessions. However, I still think they’re worth holding in your portfolio, especially Canadian banks. This is for a couple of reasons. First, the Canadian banking industry is very secure. Yes, these stocks have shown that they’re not immune to market downturns. However, they’ve also shown to be very resilient. The Big Five Canadian banks, in particular, have endured many catastrophic market events, yet they’ve always managed to bounce back to the top of our economy.
In addition, companies like Bank of Nova Scotia (TSX:BNS) have a history of being exceptional dividend distributors. This company has been paying shareholders a dividend since 1833. Since then, it has never missed a payment. That represents 190 years of continued dividend distributions. During a recession, you’re likely to not see much in terms of capital appreciation. However, dividends could help you get by and stay interested in your portfolio. Bank of Nova Scotia is my pick for that.
