There are certain ASX shares that I think would be good options to protect against a recession.
With the surprise Liberal Federal Election win it seems as though some people believe there’s now no chance of a recession.
I’m not so sure, and I prefer the idea of owning defensive businesses in any event. Here are three defensive ASX share ideas:
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
No share price is immune from negative share price movements, but Soul Patts could be one of the best options to weather a recession.
The fact that Soul Patts is an investment house that has a diverse portfolio is very useful in my opinion. Two of its largest holdings of TPG Telecom Ltd (ASX: TPM) and New Hope Corporation Limited (ASX: NHC) offer quite varied earnings profiles to economically cyclical businesses. Soul Patts can also buy shares in a downturn to take advantage of the opportunities on offer.
Soul Patts has no debt and has increased its annual ordinary dividend every year since 2000, which could be a great comfort for shareholders. It currently has a grossed-up dividend yield of 3.5%
Rural Funds Group (ASX: RFF)
Rural Funds is a real estate investment trust (REIT) that owns farmland and leases it to high-quality tenants like Treasury Wine Estates Ltd (ASX: TWE) and Select Harvests Limited (ASX: SHV).
The reason why I think it’s a solid recession-proof idea is because landlords like Rural Funds keep being paid due to the long weighted average lease expiry (WALE) and the rental increases built into the rental contracts which are linked to either CPI inflation or a fixed 2.5% increase.
Rural Funds has a diversified property portfolio of cattle, poultry, macadamias, almonds, vineyards and cotton. As time goes on its portfolio will become even better diversified with more sectors and locations.
It currently offers a distribution yield of 4.6% and it aims to increase its distribution by 4% each year.
Viva Energy Reit Ltd (ASX: VVR)
This is a bit of a left field choice from me, but it could turn out to be a decent income option to consider. It’s the owner of a portfolio of service stations around the country, 95% of its properties are leased by Coles Express. Although the fuel is actually provided by Viva Energy Group Ltd (ASX: VEA).
The reason why I think it could be counted as recession-proof is because its WALE is 12.6 years and nearly all of its properties have a 3% per annum fixed rent increase and it has 100% occupancy. In some ways it could act like a bond proxy.
It currently has a distribution yield of 5.4%.
Each of these businesses are quite likely to keep growing their distributions to shareholders no matter what the economy is doing. At the current prices I’d go for Soul Patts with how much its share price has fallen recently.
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Motley Fool contributor Tristan Harrison owns shares of 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. 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.