I’m worried a recession this year could have a big impact on my stock market portfolio. However, with inflation running at 10.7%, keeping cash in savings accounts isn’t appealing to me. Instead, I’d rather buy defensive dividend stocks that can provide me with passive income streams.
Here are three FTSE 100 dividend shares I’d consider buying in an economic downturn.
BAE Systems
2022 was an outstanding year for BAE Systems (LSE: BA.). The BAE share price skyrocketed 54%.
What’s more, the defence stock sports a 3% dividend yield.
The war in Ukraine has driven increases in European defence budgets. As Europe’s largest defence contractor, BAE Systems is well positioned to benefit if elevated geopolitical tension persists in 2023.
Any boost to the company’s order book would supplement existing demand from long-term projects with the US, UK, Saudi Arabia, and Australia.
The firm has a large order backlog and dividend cover is around two times underlying earnings. Accordingly, I’m optimistic the business will be a handy passive income generator next year, even if the economy contracts.
However, I’d be conscious that deep recessions around the world could ultimately result in key government customers slashing defence budgets. Possible austerity measures might harm the company’s growth prospects, depending on their severity.
Experian
Experian (LSE: EXPN) shares fared badly last year, slumping 23%.
The company’s dividend yield is an unremarkable 1.6%, but I still think the consumer credit reporter is a good dividend stock for me to buy in a tough economic climate.
In 2022, Barclays tipped Experian as resilient “but not immune” to a recession. In particular, analysts noted the business “navigated both a credit-induced recession and Covid-19 without a dip in organic revenues“.
Interestingly, portfolio manager Nick Train — dubbed ‘Britain’s Warren Buffett’ — added to his Experian holdings last year. I think he could be onto something.
One attractive feature for me is the company’s emerging markets exposure. New product launches in Brazil contributed to 18% organic revenue growth in Latin America for H1 2022, making it the group’s best performing region.
Nonetheless, the Experian share price faces headwinds from a UK housing market slowdown. If mortgage demand slumps, demand for credit reporting services could also fall. I’m prepared to take this risk for the geographic diversification the stock offers.
Glencore
Glencore (LSE: GLEN) shares significantly outperformed the FTSE 100 index last year, posting a 44% gain.
The Swiss-based commodity trading and mining company yields 4%.
Despite a stellar performance in recent years, the commodities giant still looks reasonably valued to me. Its forward price-to-earnings ratio is under five.
In addition, a 62% net debt reduction and a 119% increase in adjusted EBITDA for H1 2022 are encouraging markers of a firm in good financial health.
Boosted by rising demand for electric vehicle batteries, the business expects cobalt and nickel production to rise until 2025. I think this adds to the long-term investment appeal.
However, the company was recently hit with a £280m fine from a Serious Fraud Office investigation into various bribery schemes in Africa.
Although not enough to dissuade me from investing, I’d like to see improvements in Glencore’s culture to ensure legal issues don’t derail the stock’s positive trajectory.
