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Best defensive stocks to buy to protect against a possible recession

Mircea Vasiu

Defensive stocks are known for their steady dividend and price stability. Also, they are non-cyclical, as their products or services are uncorrelated to the business cycle. So what are the best defensive stocks to buy in case a recession is coming? 

An economy grows in cycles, not in a straight line. The theory of a business cycle tells us that periods of economic expansion are followed by periods of economic contraction.

In time, the overall GDP grows, but with some hiccups along the road. An economic recession is defined by a minimum of two consecutive quarters of negative economic growth.

Now that war has started in Eastern Europe, and central banks are trapped, forced to hike in economic slowdown to fight inflation, what should stock market investors do? One solution: invest in defensive stocks.

These stocks are known for their steady dividend and for providing products and services with demand little affected by the business cycle. Here are some names to consider: Walmart, CVS Health, and General Electric.

Walmart

Walmart is one of the largest corporations in the United States and the world. It runs hypermarkets and supercenters, and it is a representative company of the consumer staples sector. This is a defensive sector thus Walmart pays a steady dividend, and its products and services are uncorrelated with the business cycle.

The company increased the annual dividend in the past 48 consecutive years, and the dividend payout ratio is 34.11%.

CVS Health

CVS Health is an American company from Rhode Island, operating in the health care services industry. This is a defensive stock trading close to its all-time highs and paying a steady dividend.

The forward dividend yield is 2.15%, and the dividend payout ratio is 23.78%. At the current stock market price, the company is valued at $133.77 billion, and the enterprise value is $197.55 billion.

General Electric

General Electric is an iconic American company. It is one of the oldest companies globally, an industrial conglomerate with worldwide operations, employing close to 170,000 people. It pays a quarterly dividend, and the stock price is almost flat in the past twelve months.