The Motley Fool

5 ASX shares for a recession proof portfolio

There is increasing talk that a recession could happen in Australia due to falling property prices or in the US because of the shutdown. Normally the worst-case scenario doesn’t eventuate, but just in-case it could be worthwhile holding some ASX shares that could be recession-proof.

Of course, it’s impossible to stop share prices falling a bit in a downturn but the sectors that the below businesses operate in should mean relatively recession-proof earnings for the company and income distributed to shareholders with these five ASX shares:

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

Soul Patts might be the most recession-proof business on the ASX. It has been operating for over a century, meaning it has survived two world wars and many different major recessions.

It makes long-term investments in businesses it believes will generate strong returns, meaning Soul Patts is actually very diverse because of its underlying holdings. Two of its biggest investments include telco TPG Telecom Ltd (ASX: TPM) and construction materials business Brickworks Limited (ASX: BKW).

It has increased its dividend every year since 2000, including through the GFC, and it currently has a grossed-up dividend yield of 3%.

Duxton Water Ltd (ASX: D2O)

Duxton Water owns water entitlements that it leases out to agricultural businesses, most of its water assets are based in the South East of Australia.

Water values can down (and up) quite a lot year to year based on the level of rainfall, but an economic downturn won’t necessarily affect its asset values.

Over time, water should steadily increase in value due to the limited nature of it and Australia’s growing agricultural sector.

Duxton Water currently offers a partially franked dividend yield of 3.5%.

Paragon Care Ltd (ASX: PGC)

Healthcare is one of the most defensive industries you could consider investing it. People don’t choose when they get sick, funding is mostly provided by the government and healthcare is exposed to the ageing population tailwind.

So, with all that in mind, medical product distributor Paragon Care could be one to consider. It distributes things like beds, devices and surgery equipment to clients – particularly hospitals and aged care facilities.

Paragon Care currently has a grossed-up dividend yield of 7.4%.

Rural Funds Group (ASX: RFF)

Rural Funds is a real estate investment trust (REIT), it’s the ASX largest agricultural farm landlord.

High-quality tenants like Treasury Wine Estates Ltd (ASX: TWE) and Select Harvests Limited (ASX: SHV) are responsible for the operational risks on the farm like drought, but Rural Funds does own water entitlements for them to use.

The REIT sector has held up well in recent months. Rural Funds has rental income growth locked in with its contracts, the rental indexation is linked to either CPI or a 2.5% fixed increase. That’s why Rural Funds has predicted it can grow its distribution by 4% per annum through the rental increases and investing retained earnings into improvements at its properties.

It currently has a distribution yield of 4.7% for FY19.

InvoCare Limited (ASX: IVC)

InvoCare is Australia’s largest funeral operator. Sadly people pass away every year with little correlation to economic cycles, so demand for InvoCare’s services should match up to the growth of the official death rate because it has a market share of around a third. Australia’s ageing population should lead to growing death numbers over the long-term.

The company is currently investing heavily in upgrading and brightening its locations, which management believe could lead to sustainable earnings per share growth of 10% per annum over the long-term.

InvoCare currently has a grossed-up dividend yield of 5.5%.

Foolish takeaway

All five of these shares are defensive and could be fairly recession-proof, which is why I chose them all for my own portfolio.

These 3 stocks could be the next big movers in 2020

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.

*Returns as of 6/8/2020

Motley Fool contributor Tristan Harrison owns shares of DUXTON FPO, InvoCare Limited, Paragon Care Limited, RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Brickworks, InvoCare Limited, Paragon Care Limited, and TPG Telecom Limited. 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 Scott Phillips.

Related Articles...

Latest posts by Tristan Harrison (see all)