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3 recession-proof companies waiting to be bought

As investors we’re always on the lookout for good quality businesses that can provide reliable returns during boom or bust times.

The healthcare sector is generally a good place to find these sorts of stocks, but the food industry can also throw up a number of good options.

Food is always in demand, we can’t go without it. It’s also generally accepted that during downturns people are more likely to eat more unhealthy food, which is a good thing for two of the three stocks below:

Domino’s Pizza Enterprises Ltd. (ASX: DMP)

Domino’s is Australia’s largest pizza chain with a market capitalisation of $5.9 billion. However, it doesn’t just operate in Australia, it also has operations in New Zealand, Belgium, France, The Netherlands, Japan and Germany. It may overtake the market capitalisation of the U.S. listed Domino’s eventually.

Domino’s Australia has constantly kept itself relevant to the public by offering new pizzas and sides, it’s also managed to create one of the cheapest menus for the size of meal it offers.

It is always trying to improve its ordering and delivery services, making it faster to get pizza to your door. It’s in the process of testing drone delivery in New Zealand so don’t be surprised if they roll out that service here soon.

In FY16 Domino’s grew earnings per share by 10.9% and the dividend by 41.9%. It could deliver a few more years of piping hot growth while it expands its network.

Domino’s is trading at 46.3x FY17’s estimated earnings with a grossed up dividend yield of 1.6%.

Collins Foods Ltd (ASX: CKF)

Collins Foods is a KFC franchise operator with a market capitalisation of $629 million.

It’s becoming a major player in the Australian takeaway world and could soon become a global player. It recently acquired 11 outlets in Germany which could be the start of a big overseas expansion push similar to Domino’s. As long as there are KFCs that could be acquired, Collins Foods has a long growth runway.

In the half year to 16 October 2016 it grew revenue by 4.7% and its dividend by 33.3%. It’s currently trading at 20.7x FY16’s earnings with a grossed up dividend yield of 3.5%.

Rural Funds Group (ASX: RFF)

Rural Funds Group is the only ASX-listed farmland real estate investment trust, with a market capitalisation of $356 million.

It has a diverse array of farms which it leases to tenants including almonds, macadamias, cotton, vineyards, cattle and poultry. These farms are spread across a number of states and climates to mitigate any geographical risk such as droughts or floods.

It has made a number of strategic acquisitions since listing in February 2014, which has fuelled the growth of the share price from $0.75 to $1.69 and the quarterly dividend has grown by 13.1% from $0.0213 in July 2014 to $0.0241 in October 2016.

Rural Funds Group is trading with a forward dividend yield of 5.7% for the rest of FY17.

Foolish takeaway 

I think all three of these businesses are growing well and will keep growing for a number of years, but Domino’s earnings multiple is fairly eye watering which puts me off a little.

For income seekers I think Rural Funds Group is a great option, if capital growth is your goal then Collins Foods could be a good choice. If you want a stock with overseas expansion plans like Domino’s, but a dividend yield like Rural Funds Group you should check out this stock.


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Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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