If you’re looking for ideas for a recession proof portfolio then there are some ASX shares that could fit the bill.
That’s not to say that these shares are impervious to share price falls, but they have the potential to offer uncorrelated returns to the ASX 200 (ASX: XJO).
Some of the cyclical or discretionary businesses on the ASX like retail and construction are reporting that conditions are not as good as before.
That’s why I’m interested in the below three shares:
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Patts is one of the best examples of a business with uncorrelated returns. It’s an investment house with plenty of investments that offer different earnings like its resource assets, its investment in TPG Telecom Ltd (ASX: TPM), its healthcare assets and the property assets that Brickworks Limited (ASX: BKW) owns.
It has outperformed the ASX 200 over the long-term and keeps growing the dividend for shareholders year after year. It currently offers a grossed-up dividend yield of 3.7%.
Rural Funds Group (ASX: RFF)
Rural Funds is one of the only farmland real estate investment trusts (REITs) on the ASX. Questions raised by two overseas firms have hurt the share price to a level below the stated net asset value (NAV) per unit, so Rural Funds is looking cheap – particularly compared to other ASX REITs.
It has a diverse portfolio of farms with cattle, poultry, cotton, almonds, macadamias and vineyards all paying Rural Funds a solid yield. That rental income is increasing each year and is linked to a fixed 2.5% increase or CPI inflation. It also re-invests around 20% of its net cash rental profit into productivity improvements at the farms for more long-term rental.
Rural Funds offers a FY20 distribution yield of 6.3%.
Duxton Water Ltd (ASX: D2O)
Duxton Water is the only company on the ASX that purely owns water entitlements and leases them out to agriculture operators.
Very dry conditions have pushed water values up a lot over the past couple of years, to the benefit of Duxton Water. It’s trying to lease out more of its water assets to lock in income and provide long-term support to farmers.
It’s now trading at a 14% discount to the post-tax value per share, whilst also offering a grossed-up dividend yield of 5.7%.
Soul Patts is probably the best long-term investment of the three, it has been offering defensive growth for many decades. The other two could be solid ideas as well, but they come with volatility for their own reasons.
For other shares that could protect against a recession, I’d want to invest in these top defensive stocks for income and long-term returns.
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Motley Fool contributor Tristan Harrison owns shares of DUXTON FPO, 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 and DUXTON FPO. 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.