The U.S economy recorded two successive quarters of economic contraction, meeting the traditional definition of a recession. While the market continues to provide mixed signals, Steve Hanke, professor of applied economics at Johns Hopkins University, believes that the United States is headed for a “whopper” of a recession in 2023. While Stephen Roach of Yale University agrees it will take a “miracle” for the U.S. to avoid a recession next year.
Moreover, the Fed is expected to continue with its rate hikes to tame the high inflation. While consumers generally reduce discretionary spending during recessions, the consumer defensive sector typically sees stable demand for its products.
Given the backdrop, we think it could be wise for investors to hold defensive stocks, The Coca-Cola Company (KO) and PepsiCo Inc. (PEP), to cushion their portfolios during a recession. Moreover, these stocks have a steady dividend growth record, which makes these stocks worth owning during economic uncertainties.
The Coca-Cola Company (KO)
KO, a beverage company, manufactures, markets, and sells various non-alcoholic beverages worldwide.
KO’s $1.76 annual dividend yields 2.83% at its current share price. Its last quarterly dividend of $0.44 was paid on July 1, 2022. Its dividend payouts have increased at a 2.9% CAGR over the past three years and a 3.6% CAGR over the past five years. The company has a record of 59 consecutive years of dividend growth.
On June 13, KO announced a global relationship with Brown-Forman Corporation to debut the iconic Jack & Coke cocktail as a branded, ready-to-drink (RTD) pre-mixed cocktail option. This should be widely in demand, given its brand popularity.
KO’s net operating revenues increased 12% year-over-year to $11.33 billion in the fiscal quarter ended July 1, 2022. Gross profit for the quarter came in at $6.50 billion, up 2% from its year-ago value.
Street expects KO’s revenue for the fiscal quarter ending December 2022 to come in at $9.94 billion, indicating a 4.9% year-over-year increase. Its EPS is expected to improve 6.3% year-over-year to $0.48. The company beat the consensus EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 10.1% to close the last trading session at $62.12.
KO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
KO is also rated B in Sentiment, Stability, and Quality. Within the A-rated Beverages industry, it is ranked #20 of 36 stocks. Click here to see additional POWR Ratings for Growth, Value, and Momentum for KO.
PepsiCo Inc. (PEP)
PEP produces, markets, sells, and distributes a range of beverages and convenience foods internationally. The company operates through seven segments- Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; Asia Pacific, Australia and New Zealand; and China Region.
PEP’s $4.60 annual dividend yields 2.66% at its current share price. Its quarterly dividend of $1.15 is payable on September 30, 2022. Its dividend payouts have increased at a 5.7% CAGR over the past three years and a 7.4% CAGR over the past five years. The company has a record of 49 consecutive years of dividend growth.
On August 2, PEP and premium Romanian spring water AQUA Carpatica entered into a strategic partnership under which PepsiCo will hold a 20% equity stake in AQUA Carpatica. Following the agreement, PepsiCo will be granted the rights to market and sell spring water in Poland and Romania, with the potential to expand into additional markets, including the US. This should enhance the company’s revenue streams.
For the second quarter ended June 11, 2022, PEP’s net revenue increased 5.2% from the year-ago value to $20.23 billion. Gross Profit increased marginally year-over-year to $10.81 billion. In the same period, the company’s operating profit came in at $2.08 billion, while its net income stood at $1.43 billion.
The consensus EPS estimate of $6.69 represents a 6.9% year-over-year increase in the ongoing fiscal year ending December 2022. The consensus revenue estimate of $83.63 billion for the same period represents a 5.2% increase from its year-ago value. PEP has an impressive earnings surprise history as it surpassed street EPS estimates in three of the trailing four quarters.
The stock has gained 10.2% over the past year to close the last trading session at 172.67.
It is no surprise that PEP has an overall B rating, equating to Buy in our POWR Ratings system. The stock also has a B grade for Quality, Stability, and Sentiment. In the same industry, it is ranked #11.
Beyond the POWR Ratings grades I have just highlighted, you can view PEP’s ratings for Growth, Momentum, and Value here.
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KO shares were trading at $62.24 per share on Friday afternoon, up $0.12 (+0.19%). Year-to-date, KO has gained 6.69%, versus a -14.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...
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