Named Inside: A Great Stock for Recession

Nilus Mattive, Editor Dividend Superstars

The U.S. stock market is off to a rocky start in 2008, so I wanted to tell you about a dividend-paying company that can help you diversify your portfolio away from weakness here in the States.

I’m not going to keep you waiting for the name, either. It’s Unilever N.V., the giant European consumer staples company, which offers a nice trifecta of protection against U.S. weakness:

 It’s based overseas.

 It pays steady dividends, and …

 Its business is recession-resistant, selling products that people buy no matter what the economy’s doing.

I’ll tell you more about the advantages of Unilever (and other stocks like it) in a moment. First, I want to make it absolutely clear that …

The U.S. Economic Warning Lights
Are Going Off Left and Right!

The Federal Reserve cut the fed funds rate – what banks charge each other for overnight loans – by a full percentage point last year. And there’s more cutting to be done this year.

Why? Because the Fed knows that the engine block of the U.S. economy is cracking apart!

More Fed rate cuts this year are almost a given!

Just some of the signs:

 Employment numbers have been awful. U.S. unemployment hit 5%at the end of 2007.

 The housing market is going through its worst slump in recorded history. Prices are flat out declining … inventories are at multi-decade highs … and foreclosures have DOUBLED from a year ago.

 According to the U.S. conference of Mayors, 361 of the largest U.S. cities will experience a combined loss of $166 BILLION in economic growth this year.

 And, crude oil topped $100 a barrel for the first time in history. Many analysts expect it to go even higher this year.

So you can see why economists have been ratcheting up their predictions of a recession, traditionally defined as two consecutive quarters of economic contraction:

 David Rosenberg, North America economist for Merrill Lynch, told clients, “We are going to see an economic recession in ’08.”

 Goldman Sachs upped its odds of a 2008 recession from 30% to a range of 40% to 45%.

 Martin Feldstein, professor of Economics at Harvard University, told Congress the probability of a recession in 2008 has now reached 50%.

 And Richard Berner, Morgan Stanley’s chief U.S. economist, said the U.S. will slip into a “mild” recession this year.

Just based on historical measures, the U.S. economy is overdue for a period of contraction. Since 1945, there have been 11 recessions, and on average, they’ve come every five and a half years. Right now, we’re already past the six-year mark of continuous expansion. So based on the averages alone, we’re overdue for some pain.

Suppose I’m wrong? Then even in the very best case scenario, you’d still be looking at mediocre growth.

So that begs the question:

What Investments Outperform
During Times of Economic Weakness?
My Answer: Select Dividend-Paying Stocks

Dividend-paying stocks are a reliable way to weather all types of market hurdles. I don’t care if you’re talking about a falling dollar, a falling stock market, or a U.S. recession … dividend payers can conquer them all.

Reason: In times of trouble, investors flock to safe havens – the kind of investments that will provide them with steady returns through thick and thin.

What’s more, many of the very same companies that pay dividends also provide products that people buy even when times are tough. Examples? Pharmaceuticals, electricity, and food.

According to data from Standard & Poor’s, these are precisely the groups that have outperformed in past recessions:

Overall, the S&P 500 has lost an average of 21% during past recessions. In contrast,

 The average utility lost 15% and beat the market in 9 out of ten past recessions …

 The average health care stock posted a 7.3% decline and outperformed the market in 80% of the recessions, and …

 The average consumer staples stock lost just 2.4%, beating the market 90% of the time.

Sure, each of these still posted losses. But these were just the averages of very big and broad industry categories. If you dig a bit deeper within these groups, you’llfind three industry subsectors that have not only beaten the market during downturns, but actually posted gains during the decline!

Specifically …

Alcoholic beverage makers not only beat the market in 80% of the recessions, they actually rose an average of 6% …

Household products manufacturers posted a gain of 1.8% and outperformed in every single instance, and …

Tobacco companies trumped them all. They rose 9.6% and beat the market an astonishing 100% of the recessions!

This is precisely why I’ve told my Dividend Superstars subscribers to buy shares in these kinds of businesses. They’re currently holding a tobacco company, two pharmaceutical firms, a utility, and two household products companies. If that’s not a super team of recession-fighting stocks, I don’t know what is.

I’ve also told them to go a step further, by looking at foreign companies that pay dividends. Unilever is one of them …

Unilever Riding Higher in the Face of
Economic Slump, a Falling Dollar, and More

Unilever N.V. is a highly diversified consumer staples company.

Its massive food division (53% of sales in 2006) boasts brands like Ben & Jerry’s ice cream, Hellman’s, Breyers, and Lipton.

Its equally massive household products division (47% of sales) makes and sells familiar names like Vaseline, Dove, Suave, and Snuggle.

The very fact that Unilever focuses on necessities with strong brand names helps explain the stock’s strong outperformance lately. As you can see in the chart, it has risen steadily throughout the market’s recent turmoil.

And there are plenty more reasons why I like it as an anti-U.S.-recession play:

1. It is geographically diversified, with almost equal amounts of sales coming from Europe, the Americas, and Asia;

2. It has a proven history of thriving even when commodity costs are rising or economies are weakening; and

3. It has been paying out a large part of its profits to shareholders through steadily increasing dividend checks.

Unilever is based overseas, but you can buy its shares on the New York Stock Exchange as American Depositary Receipts (ADRs). Each ADR share represents one share of the foreign stock, and you will receive the company’s generous dividends in dollars.

Plus, with ADRs, you also stand to benefit from any further weakness in the greenback.

Sincerely,

Nilus

P.S. If you’d like to get my other recession-fighting picks, subscribe to my monthly Dividend Superstars newsletter for just $39 per year (half off the regular price). You’ll also be able to immediately download ALL of my special reports:

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