Investing doesn’t have to be complicated, but it’s not as simple as finding the next big thing, at least for most people. Long-term investing success requires a strategy that includes diversification, with a mix of different stock types that help grow your portfolio under good circumstances and shield it under worse circumstances. Only having growth stocks could be a risky allocation, especially when there are bear markets, crashes, and recessions.
Since these events are part and parcel of market cycles, it’s important to invest in solid dividend stocks. If you’re looking for a few reliable dividend stocks to anchor your portfolio if a recession is on the way, Visa (NYSE: V) and American Express (NYSE: AXP) are two great choices.
1. Visa: Everyone has to buy groceries
There are all sorts of stock types, dividend being one kind, and even within dividend stocks, there are many different types. Some are high-yielding but come with high risk, while others are extremely reliable but may have a lower yield. Some dividend stocks are also reliable for stock growth, while others, not so much.
Then there are dividend stocks that will pay no matter what, either because they are so committed to their dividend, or because their businesses are resilient and less prone to disaster even in extremely challenging conditions.
Visa is an excellent dividend stock because it’s an excellent, resilient company. It drives all kinds of payments, with more payment volume and cardmembers than any other credit card network. It’s an asset-light company with an unmatched profit margin that was nearly 55% in the second quarter, and with its profits and cash flow, it can easily fund its business and reward shareholders.
Visa’s business did suffer setbacks early in the pandemic. Sales declined for a bit before steamrolling ahead. But it remained comfortably profitable and cash-rich throughout, even if shoppers were more interested in toilet paper than luxury watches. Today it’s demonstrating robust performance despite inflation.
The only negative about Visa’s dividend is that it doesn’t have a high yield. It’s 0.77% today, which is close to 10-year highs. However, Visa has been raising its dividend annually for years, and it’s increased more than 300% over the past 10 years, which is an excellent track record.
2. American Express: The affluent market
American Express is also a credit card network, like Visa, but it operates under a different model. It has a banking segment and has expanded its business to a large array of financial services. Unlike Visa, which has relationships with banks that underwrite its credit cards, American Express has a closed-loop business and funds its own credit cards.
It’s reliable during a recession for two reasons: It targets an affluent client base that has more money to make purchases in a recession, and because it’s a bank, it has much more cash than Visa.
Warren Buffett owns both of these stocks, but he’s lauded American Express many times as one of his favorite companies. It has a moat in its global brand and targeted credit cards, and it appeals to affluent shoppers across demographics. It charges an annual fee for most of its cards, and the fee model drives loyalty and profitability.
One of the reasons Buffett loves American Express is for its dividend, which yields 1% at the current price. That’s slightly low for American Express, because it’s beating the market this year by a wide margin, with total return of 35%.
American Express is a great choice for investors looking for a reliable dividend stock to tide them through all kinds of economic events, including a recession.
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American Express is an advertising partner of The Ascent, a Motley Fool company. Jennifer Saibil has positions in American Express. The Motley Fool has positions in and recommends Visa. The Motley Fool has a disclosure policy.
Worried About a Recession? Buy These 2 Top Dividend Stocks and Relax. was originally published by The Motley Fool
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