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The stock market has entered bear market territory this year due to fears that the aggressive interest rate hikes of the Fed may cause a recession. If a recession shows up, it will force many companies to cut their dividends. This is a significant risk for income-oriented investors, who should always invest in recession-proof companies. In this article, we will discuss the prospects of three Dividend Aristocrats that offer reliable dividends, even in the event of a recession.
 

Archer-Daniels-Midland (ADM)

Archer-Daniels-Midland is the largest publicly traded farmland product company in the U.S. It has a history of more than 100 years and its businesses include the processing of cereal grains and oilseeds as well as agricultural storage and transportation.

Archer-Daniels-Midland enjoys significant competitive advantages thanks to its large scale and geographical reach. In addition, thanks to the essential nature of its business, the company has proved resilient to recessions. This has proved to be the case throughout the coronavirus crisis as well. To be sure, Archer-Daniels-Midland posted record earnings per share in 2020 and 2021. Even better, it has maintained its strong business momentum this year and thus it is on track to grow its bottom line by approximately 20% this year, to a new all-time high.

Archer-Daniels-Midland has exhibited a somewhat volatile performance record but it has managed to grow its earnings per share by 9.7% per year on average over the last decade. Moreover, it has promising growth prospects ahead thanks to the acquisition of Ziegler Group, and the nutrition flavor research and customer center opening. Archer-Daniels-Midland will benefit from new eating trends, such as alternative proteins. Its nutrition segment has been growing its profit by 15%-20% per year. As a result, the company is likely to continue growing its earnings per share to new all-time highs in the upcoming years.

Thanks to its solid business model, Archer-Daniels-Midland has grown its dividend for 47 consecutive years. The stock is currently offering a lackluster dividend yield of 2.0% but it has grown its dividend at a 5% average annual rate over the last five years. Given its exceptionally low payout ratio of 26%, its solid balance sheet, and its promising growth potential, Archer-Daniels-Midland is likely to keep raising its dividend materially for many more years.
 

NextEra Energy (NEE)

NextEra Energy is an exceptional utility. Its rate-regulated electric utilities serve more than 11 million residents in Florida while its renewable energy division is the largest generator of wind and solar energy in the world. The company generates approximately 70% of its revenues from its conventional business and the remaining 30% from its renewable energy segment.

NextEra Energy has exhibited a consistent performance record during the last nine years. The utility has grown its earnings in 8 of the last 9 years, at a 9.4% average annual rate over this period. It has thus grown its bottom line at a much faster pace than most typical utilities, which are characterized by mid-single-digit growth.

Even better, NextEra Energy has exciting growth prospects ahead thanks to the secular shift from fossil fuels to clean energy sources. This shift has greatly accelerated since the onset of the coronavirus crisis and will remain in place for the next several years. As a result, NextEra Energy is likely to continue growing its earnings per share at a fast pace for many more years.

Moreover, as a utility, NextEra Energy is essentially immune to recessions. It has proved rock-solid, not only during the Great Recession but also throughout the coronavirus crisis. To be sure, the company achieved record earnings per share in 2020 and 2021.

NextEra Energy is a Dividend Aristocrat, with 26 consecutive years of dividend growth. The stock is currently offering a 2.0% dividend yield, which is uninspiring for a utility stock. However, NextEra Energy is not a typical utility stock. It has grown its dividend by 12% per year on average over the last five years. Thanks to its healthy payout ratio of 60% and its exciting growth prospects, the company is likely to continue raising its dividend at a fast pace for many more years.
 

Linde (LIN)

Linde was created with the merger of Germany-based industrial gases company Linde AG and US-based industrial gases company Praxair. It is the largest producer of industrial gases in the world.

Linde is the largest player in its industry by a wide margin. As a result, it has a dominant business position in most of its markets and thus it has strong negotiating power with its customers. In most of its markets, it enjoys an essential duopoly, as the only other large player is Air Liquid. The dominant position of Linde has obvious advantages.

Linde has exhibited a somewhat volatile performance record but it has grown its earnings per share at a solid average annual rate of 7.4%. Thanks to the sustained global economic growth, which results in the ever-growing consumption of industrial gases, Linde is likely to keep growing its earnings for many more years. The company enjoys particularly strong momentum right now, with a 30% growth in earnings per share in 2021 and 10% expected growth this year.

Unfortunately, Linde is currently offering a dividend yield of only 1.6%. However, the company has a solid dividend growth record. It is a Dividend Aristocrat, with 29 consecutive years of dividend growth. It has also grown its dividend by 8% per year on average over the last five years. Given its solid payout ratio of 40% and its reliable growth trajectory, Linde is likely to continue raising its dividend meaningfully for many more years.
 

Final Thoughts

Recessions are rough periods for income-oriented investors, as they tend to force many companies to slash their dividends. Therefore, income-oriented investors should select companies that have proved resilient to recessions. The above three stocks have exceptional dividend growth records and offer reliable dividends, which will remain safe even in the event of a recession.

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