There’s a lot of uncertainty in the air at the moment. Aside from the annoyance of cancelled plans in the festive season, I think many have the view that we could be in for a tough winter. Omicron is spreading quickly, and could make it hard for the UK economy to operate anywhere near full blast in the coming months. When looking for defensive dividend stocks to help protect myself against another downturn, here are two that are on my radar.
Sweet as sugar
The first one is Tate & Lyle (LSE:TATE). The FTSE 250 food producer currently has a dividend yield of 4.8%. Over the past year, the share price is down 1%.
The company has done well financially, shown in the H1 results released last month. When excluding the discontinued operations, revenue was up 19% and profit before tax was up 20% on the same period last year.
What appeals to me about the dividend stock is the robustness of performance within the main food and beverage division. Its core ingredients, such as sweeteners, are good base materials for a variety of uses for consumers. Therefore, even if we do see a recession in the UK, I wouldn’t expect demand to fall that much.
In terms of risks, the business is going through a transformation. It’s discontinuing some operations in North and Latin America. I think this could be a good thing in the long term, but a smooth transition with offloading businesses is never easy. This makes it a risk in the immediate term.
An alternative banking dividend stock
When most people look for a dividend stock within the banking space, many choose the FTSE 100 heavyweights. However, there are others that I think sneak under the radar. For example, Investec (LSE:INVP). The Anglo-African bank has a dividend yield of 4.84% and has seen its share price double in the past year.
I think the bank is a recession-hardy option for a couple of reasons. Firstly, it isn’t just concentrated on business in the UK. In the H1 2021 results, the South African arm made adjusted operating profit of £191.9m, contrasting to the UK and other markets at £133.8m. Therefore, if we get a recession in the UK, the business can try to offset this revenue hit from other areas.
Secondly, the banking space has been. able to cope with a pandemic hit. Although it offered short-term pain last year, most banks have bounced back really well. Therefore, I think investors will note this should we see a similar Covid-19-induced crash again.
One point that is worth noting is that I’m not entirely comfortable taking on exposure to South Africa. Although it acts as a good diversifier for revenue, the political and social unrest is something of a concern to me.
Overall though, I’m considering buying the shares of both companies mentioned above. I think the dividend stocks can offer me good income, even if we do see another recession in the UK.
