The US’s latest fourth quarter 2022 GDP grew at a solid pace of 2.9% while full year 2022 GDP growth stood at 2.1%.
Despite the robust growth, the consensus view for 2023 is that a recession will hit the economy.
This worry can be attributed to the higher interest rate environment that has forced businesses to slow their spending and investment and led to job cuts.
Here we look at three stocks that are likely to remain resilient and pay increasing dividends despite an economic slow down.
McDonald’s Corp (NYSE: MCD)
McDonald’s is one of the most well-known consumer brands in the world and has increased its dividend every year over a decade and more.
Quarterly dividend in 2013 stood at US$0.77 per share but has now increased to US$1.52 per share.
McDonald’s is also the world’s largest fast food chain with more than 40,000 locations worldwide.
The Golden Arches of McDonald’s are a familiar sight to all.
A lesser-known fact of the fast food behemoth is that it is one of the world’s biggest landowners and that its income is derived primarily through royalties and rental income.
Of these 40,000+ locations, approximately 93% are franchised. There are two types of franchisees, namely, a conventional franchise or an affiliate.
Under a conventional franchise arrangement, McDonald’s owns a long term lease on the land and building and the franchisee pays for equipment, signs, seating and décor.
The business model of the conventional franchisees is designed to generate stable and predictable income.
The affiliate stumps up its own capital and pays McDonald’s royalties based on sales as well as initial fees upon the opening of a new restaurant or granting of a new licence.
This affiliate business model is used primarily in China and Japan.
McDonald’s was affected by the Russian-Ukraine conflict with 847 restaurants in Russia and 108 restaurants in Ukraine, accounting for 9% of revenue.
McDonald’s demonstrated its resilience last year despite the closure of the restaurants in Russia since 1 April 2022.
McDonald’s was able to deliver 2022 revenue that was in line with 2021’s results.
Excluding the effects of the stronger US dollar, McDonald’s would have seen revenue increasing by 6% year on year.
Coca-Cola Co (NYSE: KO)
Coca-Cola, who is well known for its namesake beverage, also owns well-known brands such as Dasani, Fanta, Schweppes, Minute Maid, Sprite and Georgia Coffee.
Similar to McDonald’s, the company announced the suspension of its business in Russia as a result of the conflict in Ukraine.
The approximate negative impact was 1% of net revenues.
This did not impede Coca-Cola significantly as Coca-Cola recorded 2022 revenues that were 11% higher year on year.
Earnings per share for 2022 declined by 3% year on year due to an 11% impact from currency headwinds.
In recent years, Coca-Cola bought Costa Coffee and invested in a 17% stake in Monster Beverage to expand its portfolio.
Coca-Cola uses digital engagement as a tool to stay relevant as well as grow its consumer base.
Coca-Cola successfully executed a global campaign for FIFA World Cup Qatar 2022 by creating immersive digital experiences.
The company developed its own digital platform and featured social experiences for soccer fans, garnering interactions from more than five million consumers.
Coca-Cola has a strong brand recognition and is a stock that has been in Warren Buffett’s portfolio since 1988.
Warren has added Coca-Cola shares over the years, currently owning 400 million shares through Berkshire Hathaway (NYSE: BRK.B), amounting to more than 9% of Coca-Cola.
With Buffett as a key shareholder and a stellar track record of dividend growth, Coca-Cola is well regarded as a stock that you can own through thick and thin.
The evidence? The company has increased its quarterly dividend every single year over the past decade, from US$0.28 in 2013 to US$0.46 at present.
Procter & Gamble Co (NYSE: PG)
Protcer and Gamble, or P&G, is a consumer products giant with a strong brand portfolio with well-known brands such as Pampers, Braun, Gillette, Head & Shoulders, Pantene, Oral-B, Vicks and many more.
In P&G’s recent fiscal 2023’s second quarter (2Q FY2023) results for the period ending 31 December 2022, the company recorded organic sales growth of 5% year on year.
This growth was driven by pricing, which contributed a 10% increase to organic sales growth, as well as sales mix, which added 1%.
However, organic sales were offset by lower volume which impacted growth by 6%.
Core earnings declined 4% year on year as a result of the negative effect of foreign exchange. Excluding this effect, earnings actually grew 5% year on year.
The resilient earnings demonstrates P&G’s ability to increase prices which more than offset cost pressures in the current inflationary environment.
Even the most resilient of companies are not immune to headwinds.
P&G has warned investors to take note of potential risks such as further cost increases, major supply chain disruptions and additional geo-political disruptions which could lead to weaker sales and profits.
Despite the potential headwinds, P&G communicated a resilient outlook for the company’s two remaining quarters in FY2023, guiding for organic sales growth of between 4% to 5% year on year.
Core earnings is forecasted to increase within a range of 0% to 4% year on year.
Any earnings increase, however, will be highly dependent on P&G’s strong pricing ability as there will be headwinds from higher costs.
Procter & Gamble (P&G) has also increased its quarterly dividend every single year without fail for the last 66 years. More recently, its quarterly dividend rose from US$0.6015 in 2013 to US$0.9133 in 2023.
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Disclosure: Alex Yeo does not own shares in any of the companies mentioned.
