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What Dividend Stocks to Buy For 2020

What Dividend Stocks to Buy For 2020

According to 72% of economists that are surveyed by the National Association for Business Economics in August, the U.S economy could enter a recession by the end of 2021. Investors should not be skeptic about this but, in case there will be an inevitable market downturn in the future, they should still be prepared for it. 

Since it is practically impossible for your exits and returns to the market to be accurately timed without missing out on significant gains, it is counterproductive to dump all your stocks based on those fears. A better strategy is to buy defensive plays that pay dividends that have more business models that are recession-resistant after selling some riskier stocks. Verizon (NYSE: VZ), Dollar General (NYSE: DG), and PepsiCo (NASDAQ: PEP) are three stocks that fit the description.

Dollar General

Ended the last quarter with 15,836 stores, Dollar General is the top “dollar store” chain in America. Its rival Dollar Tree (NASDAQ: DLTR) (and its subsidiary Family Dollar) mostly focuses on urban and suburban markets while Dollar General’s stores open mostly in less densely populated areas. 

Unlike Dollar Tree which sells all its products for a dollar, Dollar General isn’t a true “dollar” store. Compared to traditional drugstores or supermarkets, it sells most of its products at 20%-40% off instead. This is Dollar General’s edge against Amazon and Walmart. 

In 2018, same-store sales of Dollar General rose 3.2% and in the first half of 2019, it rose 3.9%. In the second quarter, it boosted its store count by 5% annually. Through the “retail apocalypse”, it is making one of the few brick-and-mortar retailers expanding. 

This year, Dollar General’s revenue and earnings are expected by analysts to rise between 8% and 10% respectively. Its forward dividend yield at 0.8% won’t attract any serious income investors and its stock isn’t cheap at 22 times forward earnings. Dollar General will be a solid stock to own during an economic downturn since during recession, its growth will accelerate as a cash-strapped shopper would flock to its discount stores. 

Verizon

Since Verizon’s wireless and wireline customers are mostly locked into contracts, it’s another recession-resistant stock. Its wireless business is where the telco generates most of its revenue. Which last quarter net added 615,000 postpaid smartphones.  Its wireline revenue declined 4% to $7.1 billion last quarter and smartphone unite revenue rose 3% annually to $23.6 billion. 

Continued low single-digit revenue earnings growth for balancing act is what Verizon expects for the whole year. However, Verizon’s recent deal with Disney (NYSE: DIS) could strengthen both of its businesses as the latter rolls out the streaming service – new unlimited wireless, Fios Home Internet, and Home Internet customer a free year of Disney+ -- in mid-November. 

Growth-oriented investors won’t be impressed with Verizon’s bottom-line growth. However, the stock trades pay a hefty forward yield of 4% and at just 12 times forward earnings. For 13 straight years, that dividend hiked annually, and over the past 12 months, it just spent just 60% of its free cash flow (FCF) on that payout. To keep it simple, to make the great defensive play against a difficult market, Verizon has to have its wide moat, high yield, low valuation, and robust cash flow growth. 

PepsiCo

Another high single0digit earning growth over the past five years and defensive play that generated low-to-mid-single-digit revenue growth: PepsiCo. 

For its core EPS to dip 1% on a constant currency basis, it expects its organic revenue to rise 4% this year. When asset sales, franchising moves, and a lower tax rate inflated its EPS, in 2018, it attributes that unusual decline to tough comparisons. However, over the next five years, it earning growth to even out with 4% annual growth, analysts expect. 

PepsiCo beverages, Frito-Lay snacks, and Quaker Foods – Pepsico’s three core businesses are the reason why it is considered a recession-resistant pick since all of it generates steady growth throughout the economic downturns. A recent Piper Jaffray survey found that three of the top five snack brands for U.S. teens (Lay’s, Doritos, and Cheetos) were all Frito-Lay brands and since Gen Z accounts for a larger size of the consumer market so the growth of PepsiCo will also continue. 

By launching healthier versions of Frito-Lay and Quaker products, and lower-calorie and sugarless sodas, non-carbonated beverages like water, juice, and tea, PepsiCo continues to evolve. Its forward dividend yield of 2.8% which raised annually over four decades and the stock isn’t cheap at 23 times forward earnings – and this is a defensive stock against the difficult market. 

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