Things can happen fast on Wall Street. Investors recently switched lanes from inflation concerns to outright recession fears after a stream of weak economic data followed the Federal Open Market Committee's (FOMC) decision to hold interest rates steady until September. While nobody knows what the market or the economy will do in the future, volatility returned to the markets and could make things a bit bumpy over the coming months.
Investors began flocking to defensive investments, including stocks of recession-resistant businesses.
These three blue chip stocks should perform better than most in a volatile market. They pay great dividends and have durable long-term growth prospects.
Confidently buy and hold these names for the next 20 years.
Monthly dividends to pay your bills
Realty Income (NYSE: O) is poised to benefit from lower interest rates. Realty Income is a real estate investment trust (REIT) ; it acquires and leases real estate and distributes its taxable income to shareholders as dividends. Realty Income stands out for a few reasons. First, the company focuses on single-tenant retail properties, such as renting to businesses like convenience stores, grocery stores, movie theaters, and more. These tenants are all recession-resistant businesses that pay dependable rent. Second, Realty Income signs net leases, meaning the tenant is responsible for maintenance, taxes, and insurance expenses. As a result, Realty Income's rental income is very predictable.
Next, Realty Income pays a monthly dividend, which is rare for U.S. companies. The dividends add up to approximately $3.16 per share, a 5.3% yield at the current price. Realty Income has also raised its dividend yearly since going public, a 31-year streak. This includes raising the payouts during economic crises like the financial meltdown of 2008-2009 and the pandemic of 2020. Realty Income is genuinely battle-tested and continues to pay an ever-increasing dividend.
The stock has underperformed the market due to high interest rates; REITs like Realty Income borrow to fund growth, so high interest rates negatively impact their business. That trend could now reverse as the FOMC cuts rates. The stock trades at just 14 times its funds from operations (REIT earnings), an attractive valuation for a high-yielder with a proven long-term growth resume.
People won't stop buying groceries
Food and beverages are a no-brainer for long-term investors. Companies like PepsiCo (NASDAQ: PEP) may not set the world ablaze with growth, but slow-and-steady expansion has fueled durable investment returns for decades. PepsiCo sells its namesake soda but, in reality, is a conglomerate of food and beverage brands, including Mountain Dew, Gatorade, Quaker, Frito Lay, Doritos, Cheetos, and many more. You'll find PepsiCo's products throughout grocery stores worldwide, which makes it hard for the company to have a down year.
Given that context, it's no shocker that PepsiCo is a magnificent dividend stock. PepsiCo is a Dividend King , with over five decades of consecutive dividend growth. The stock offers an excellent combination of income and upside due to its current 3% yield and five-year annualized dividend growth rate between 6% and 7%. PepsiCo pays about 66% of its earnings out as dividends, leaving enough cushion for PepsiCo to invest in growth or endure an unexpected slump.
While PepsiCo is recession-resistant, management has noted that consumers have resisted price increases. As a result, the stock has dipped to a price-to-earnings (P/E) ratio under 22 versus its five-year average of 26. The stock seems fairly valued today (not too expensive, but not cheap). Investors looking for a long-term stalwart that can deliver slow and steady growth should consider PepsiCo a stock they can trust.
The leader in next-generation nicotine products
Tobacco isn't a dead industry yet but is clearly in slow decline. Philip Morris International (NYSE: PM) has established itself as a market leader in next-generation nicotine products, which feature smokeless offerings like vaping and heated tobacco devices, as well as oral nicotine pouches. Philip Morris began its journey to next-generation products in 2014 with IQOS and has built these innovations into a significant portion of the business. Today, IQOS and oral nicotine brand Zyn are fueling growth as management milks the cigarette business for profits with steady price increases.
This revived growth has Philip Morris poised to shower investors with cash over the coming decades. The stock is already a high-yielder, with a starting yield of 4.4%. Additionally, the payout should grow nicely since analysts believe the company will grow earnings at a high-single-digit pace over the long term. Organic smoke-free product revenue grew over 18% year-over-year in Q2, which shows just how much momentum these next-generation products have. Philip Morris is a growing business again despite the secular decline in smoking.
The stock is more expensive than in recent years; shares trade at a P/E of 18 versus a five-year average of 17. However, the company's growth, strong position with next-generation nicotine products , and high starting dividend yield seem enough to justify a long-term investor scooping up shares.
Justin Pope has positions in Philip Morris International. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy .
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