3 top dividend shares to beat a new recession

I believe that good dividend shares are my best approach to keeping my money safe in a recession. Here are three I’m looking at for 2022.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

The UK economy shrank in March, and there could be worse to come. And there’s been a tech stock sell-off as investors head for safety. So what am I going to do as we face a toughening economy? I’m sticking with dividend shares.

But I won’t buy just any dividend shares, no. Here are three I’m thinking of buying to help me through a recession.

Not the biggest

I’m keeping away from the biggest FTSE 100 dividend yields right now, because many of them are not well covered by earnings. Some of the biggest payers have also cut their dividends in recent years too.

BP (LSE: BP) offers a forecast yield of 4.4%. That’s nowhere near the biggest on offer. But what it should provide is strong support from earnings, with analysts estimating cover at around four times.

Oil prices have soared and are sticking above $100, at least for now. That’s led to surging first-quarter profits for BP, strengthening my confidence in this year’s dividend. I don’t think it’s quite a no-brainer buy, mind.

For one thing, the government is increasingly making calls for a windfall tax to cream off some of this year’s profits. And then in the long term, we have that renewable energy thing. There’s long-term risk, but BP is a candidate for me.

Spreading the cash

I am a big fan of investment trusts at any time, but I think they come into their own during economic down spells. There is a risk that a trust will see its share price fall as its holdings drop in value in a recession — in fact, I think it’s almost inevitable.

But trusts can carry over spare cash from good years to keep their dividends going during leaner years, which helps manage that risk.

I’m considering Murray Income Trust (LSE: MUT), which invests in a range of UK shares that I see as safe long-term cash generators. It includes Diageo, AstraZeneca, SSE, and Unilever among its top 10 holdings.

I see that as a nicely diversified selection of dividend shares for a period of recession. Well, actually, I think it’s a solid selection for my long-term portfolio at any time.

Long track record

I’ve often considered adding British American Tobacco (LSE: BATS) to my dividend shares collection. That’s because of sustained profits, strong yields, and decent cover by earnings. But there’s one thing I never realised, until I just recently completed some more research.

Looking back over annual results from BATS, I discovered that the company has lifted its dividend every year for the past 20 years. Actually, the trend might be longer, but that’s as far back as I went.

The company is engaged in a £2bn share buyback programme too. I reckon that means it should have the cash flow to keep the dividend going through any kind of recession.

What’s the downside? Well, it’s the tobacco business. And we could see a big disjoint in performance as smoking gives way to other forms of consumption.

But for my money, these are all dividend shares I’d buy for long-term income.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has positions in Unilever. The Motley Fool UK has recommended British American Tobacco, Diageo, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Buffett at the BRK AGM
Investing Articles

Can Warren Buffett principles help when looking for AI stocks to buy?

Billionaire Warren Buffett has made a fortune by applying old investing principles to new industries. Can our writer learn some…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

Up 36% in 3 months! Is my nightmare purchase of Glencore shares about to come good with a vengeance?

When Harvey Jones bought Glencore shares two years ago, he didn't expect to find himself sitting on a 45% loss.…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

£1,000 invested in Lloyds shares 5 years ago is now worth…

Anyone who’s owned Lloyds shares over the last five years is probably laughing right now with impressive returns that crushed…

Read more »

A mature woman help a senior woman out of a car as she takes her to the shops.
Investing Articles

If a 50-year-old puts £500 a month into a SIPP, here’s what they could have by retirement

Investing £500 a month with a SIPP could build a pension pot worth £269,900 or quite a bit more over…

Read more »

A rear view of a female in a bright yellow coat walking along the historic street known as The Shambles in York, UK which is a popular tourist destination in this Yorkshire city.
Investing Articles

How much do you need to invest in dividend stocks to target a £1,000 passive income?

Want to earn an extra £12,000 each year with dividend stocks? Zaven Boyrazian explores how much money investors need to…

Read more »

Finger pressing a car ignition button with the text 2025 start.
Investing Articles

FTSE shares for beginners: 2 solid picks to consider when starting a Stocks and Shares ISA

For those new to investing, Mark Hartley explains why he believes these two FTSE shares could help kickstart a resilient…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Here’s how to invest £10k to target a 7% dividend yield in 2025

Want to earn a lucrative and sustainable 7% dividend yield? Zaven Boyrazian explains the strategy he uses to generate plenty…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’m taking Warren Buffett’s advice as stocks reach record highs

Warren Buffett's wisdom is guiding my investing strategy in 2025 as stocks start reaching new all-time highs. Here's how I'm…

Read more »