With a worsening economy spelling trouble for some companies, I have been thinking about businesses that might continue to thrive even in tough times. Here are a pair of so-called recession shares I would consider adding to my portfolio. Although dividends are never guaranteed, I think both of them could continue to increase their payouts in coming years.
DCC
DCC (LSE: DCC) operates in a few different business areas. One that I think should see demand hold up fairly well whatever happens to the economy is energy supply. It sells energy like gas to sites such as homes not connected to the power grid. Ongoing customer demand and a limited number of competitors should help this business keep doing well, in my opinion.
As well as energy, the company operates in other areas such as information technology. Some of these activities will likely perform better than others in a recession. But the spread of businesses and revenue streams gives the firm the benefit of diversification. So even if one part slows down, other divisions may continue to do well.
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It has raised its dividend annually for 27 years in a row, with last year’s increase being a chunky 10%. Such growth is never guaranteed, but its appealing business model and proven profit potential could help to support future increases. After the shares fell 17% in the past year, DCC now yields 3.5%.
National Grid
I reckon National Grid (LSE: NG) is also set to benefit from the robust nature of energy demand. Higher prices or tighter budgets may lead some customers to use less electricity. But business and residential properties will still need power. That should help profits at the firm as it owns the infrastructure through which a lot of the nation’s electricity is distributed.
That business model has worked for decades through thick and thin and I see no particular reason for that to change any time soon. There are risks though. The company has been reducing its exposure to gas distribution. This means it could be more sensitive than before to swings in electricity usage. If it falls, the business may see revenues and profits declining too. But with gas demand likely to fall due to environmental rules, I reckon the electricity focus should be the right long-term move for it.
National Grid shares offer me a dividend yield of 4.9%. The dividend has been growing in recent years and is more than covered by earnings, so I see potential for modest future growth.
Buying recession shares with dividends
I like these companies because I think their business models offer the potential for future profits driven by robust customer demand. That could help support their share prices.
But the prospect of growing dividends also sounds good to me. In a recession, money can get tighter, so passive income streams such as dividends can be particularly helpful. That is why I would consider both of these shares for my portfolio right now.
