2019 seems set to see (new) record low interest rates for the foreseeable future. The Reserve Bank of Australia has made it as clear as possible that they see monetary policy as a one-way street as inflation remains negligible and the unemployment rate ticks higher. This, of course, means that the rock-bottom interest rates that are currently hitting our savings accounts, bonds and term-deposits are likely to get worse (except existing bond holders of course, but they still don’t have much to cheer about).
This leaves one option for income-seeking stock market investors – dividend-paying shares. But, as many approaching-retirement investors who battled through the GFC would know, shares can be fraught with danger if they are your primary source of income.
Markets move on greed and fear far more than on actual business fundamentals (most of the time). If the underlying business model is strong, anti-cyclical and impervious to economic shocks, investors don’t need to worry about what the share price is doing during a recession – the dividends will be safe and will keep on rollin’ in (you might even want to bring that term deposit back in and buy more).
Here are three ASX dividend-paying behemoths that, in my opinion, are some of the best bets for recession-proof dividends.
Woolworths Group Ltd (ASX: WOW)
I think Woolworths could be one of the safer dividends out there. The company’s major business is of course supermarkets, of which it owns 955 across the country. We all need groceries, regardless of the economic weather and a cheap supermarket like Woolworths is going to be in high demand if tough economic times befall us. Woolworths’ other businesses include Big W (which also offers discount items) and Endeavour Drinks and ALH Hotels. The alcohol industry is famously recession-proof and owning the biggest bottle-shop chain in the country is no disadvantage for the company’s bottom line. Although Woolworths (in my opinion) has a pretty bullet-proof portfolio of businesses, its dividend yield is currently 2.97% on current prices, so you may want to consider waiting for a price drop or consider Woolworths’ arch-rival…
Coles Group Ltd (ASX: COL)
The newly spun-off Coles is more of a one-trick pony with groceries and doesn’t have the diversity of Woolworths’ other businesses. Saying this, the same principles of grocery demand apply to Coles, perhaps even more so, as Coles seems to be differentiating itself in the grocery sector with rock-bottom prices. Coles also is expected to pay a much higher dividend than Woolworths going forward (current estimations are around 5% before franking), so if you are hungry for income, Coles is worth a look.
Transurban Group (ASX: TCL)
Transurban operates a vast network of toll-roads across capital cities in Australia. It owns no less than five toll roads in Sydney, and all have inflation-linked pricing mechanisms written into contract (most allow at least a 4% rise per year). Driving is an activity that is fairly safe from a recession and with congestion not likely to ease considering population growth, Transurban can convincingly boast of a highly stable dividend in the years to come.
If you are concerned about the impact a stock market crash would have on your dividend portfolio, it’s well worth a look at the revenue bases that your shares are built on. If they dwell of rocks, by all means, keep them. But if they are built on sand, now might be a good time to think about rebalancing.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COLESGROUP DEF SET and Transurban Group. 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.