Anyone who’s been following the markets during 2019 would have picked up on the almost incessant talk of ‘the next recession’ and when it’s coming.
Between the Trump trade wars, interest rate cuts and the yield curve inverting, there always seems to be something pointing towards the doomsday clock.
This has made retirees and other income investors very worried (understandably). Record low cash rates mean that bonds, term deposits and other cash or fixed-interest investments traditionally used as portfolio protection are now yielding barely anything, meaning that more investors are being reluctantly pushed into the share market.
Although stocks are inherently more risky than other investments, I think dividend-paying shares are the best way of protecting your wealth against a looming downturn.
How do dividends protect against a recession?
Well, unlike share price returns (which you can only bank if you sell the stock), dividends keep on rolling through the door as long as you hold the company. That means that even if your shares get hit in a market crash or recession, cash from your dividends can help cushion your portfolio against those paper losses.
Of course, not all dividends are equal. Buying shares of a company like Sydney Airport Holdings Pty Ltd (ASX: SYD) is generally considered a lot safer than something like JB Hi-Fi Ltd (ASX: JBH) or even Commonwealth Bank of Australia (ASX: CBA). These companies (and their earnings) will likely get hit by a recession a lot more than a monopolised airport.
Listed investment companies (LICs) like Australian Foundation Investment Co. Ltd (ASX: AFI) are also worth considering. LICs have the power to hold cash in reserve for when it’s needed most. That’s how AFI could get away with not cutting its dividend at all during the GFC – something its shareholders were very grateful of.
If you’re worried about a recession (which is very prudent, seeing as we haven’t seen one for a while), have a think about the dividend shares you hold in your portfolio and how likely they are to cut their dividends if the economy goes south.
Rather than trying to time the market and go to cash, just be confident in your holdings and the dividends they pay, and you will come out of the wash looking ok!
For more of our favourite dividend shares, make sure you have a look at this report - NEW! Top 3 Dividend Bets for 2019
With interest rates likely to stay at rock bottom for months (or YEARS) to come, income-minded investors have nowhere to turn... except dividend shares. That’s why The Motley Fool’s top analysts have just prepared a brand-new report, laying out their top 3 dividend bets for 2019.
Hint: These are 3 shares you’ve probably never come across before.
They’re not the banks. Not Woolies or Wesfarmers or any of the “usual suspects.”
We think these 3 shares offer solid growth prospects over the next 12 months. Each of these three companies boasts fully franked yields and could be a great fit for your diversified portfolio. You’ll discover all three names and codes in "The Motley Fool’s Top 3 Dividend Shares for 2019."
Even better, your copy is free when you click the link below. Fair warning: This report is brand new and may not be available forever. Click the link below to be among the first investors to get access to this timely, important new research!
The names of these top 3 dividend bets are all included. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies move – we may be forced to remove this report.
Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings 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.