With inflation on the rise, the Federal Reserve has declared its intention to raise interest rates. Higher interest rates, combined with the ongoing Russia-Ukraine war, could send the global economy into a recession this year.

The prospect of recession might be scary, but investors can prepare for this by positioning their portfolios toward high-quality dividend stocks. Recession-proof stocks that pay continuous dividends even during economic downturns, are highly appealing in an environment of uncertainty.

These 3 dividend stocks should have little trouble maintaining (and even increasing) their dividends over the next several years, regardless of the global economy.

Parker-Hannifin (PH)

Parker-Hannifin is a diversified industrial manufacturer specializing in motion and control technologies. It has paid a dividend for 71 years and has increased that dividend for a remarkable 65 consecutive years. This places it on the exclusive Dividend Kings list.

The company continues to generate strong growth. In the most recent quarter, net sales increased 12% year-over-year while adjusted earnings-per-share grew 29%.

Parker-Hannifin expects 2022 to be another strong year. The company raised guidance after the fourth quarter. It now expects organic sales growth in fiscal 2022 to increase 10%-12% and adjusted earnings-per-share in a range of $17.80-$18.30.

Parker-Hannifin has a number of competitive advantages, including its scale, global distribution network, and technical experience. Parker-Hannifin manufactures components that are relatively obscure yet critical to the operations of heavy machinery, factory equipment, aircrafts, and other large industrial devices.

These competitive advantages are clearly reflected in its dividend growth record, which is exceptional, particularly given the high cyclicality of the industrial sector.

The stock has a low payout ratio of just 22% expected for 2022, based on recent management guidance for full-year EPS. This means the company has plenty of financial cushion to maintain the dividend, even if earnings took a temporary dip in a recession. PH stock currently yields 1.5%.

Pentair Plc (PNR)

Pentair is a Dividend Aristocrat, as it has increased its dividend for over 40 consecutive years. Its ability to raise its dividend each year is due to its stable business model. Pentair is a water solutions company that operates in 3 segments: Aquatic Systems, Filtration Solutions, and Flow Technologies.

The company generated strong growth in 2021. In the 2021 fourth quarter, revenues of $990 million during the quarter rose 24% year-over-year. Pentair recorded earnings-per-share of $0.87 for the fourth quarter, which was up by 24% year over year.

Pentair also expects earnings-per-share to increase 13% in 2022, at the midpoint of management guidance. Looking longer-term, management believes the company can attain 10% annual EPS growth over the next several years. This should give the company plenty of growth to raise the dividend at a high-single digit rate each year.

Pentair’s dividend has grown consistently for decades, adjusting for spin-offs. The payout ratio is not very high, which makes us believe that the dividend looks quite safe. Even a decline in earnings caused by a recession, would most likely not result in a dividend cut.

Above-average operating efficiency is one of Pentair’s advantages over peers. The company employs a strategy called the Pentair Integrated Management System which has allowed its organizational structure to remain lean, and which has allowed the company to grow its already strong margins in the past. Pentair is a leader in the niche markets it targets, and through tuck-in acquisitions, Pentair can grow its size and scale further.

Procter & Gamble (PG)

Procter & Gamble has a very impressive track record of steady dividends. Procter & Gamble has paid a dividend for 131 years and increased its dividend for 65 consecutive years – one of the longest active streaks of any company. It is also a member of the Dividend Kings.

Procter & Gamble is a consumer products giant that sells its products in over 180 countries. Notable brands include Pampers, Luvs, Tide, Gain, Bounty, Charmin, Puffs, Gillette, Head & Shoulders, Old Spice, Dawn, Febreze, Swiffer, Crest, Oral-B, Scope, Olay and many more. The company generated $76 billion in sales in fiscal 2021.

In the most recent quarter, the company generated $20.95 billion in sales, a 6% increase compared to Q2 2021. This result was led by sales increases of 3%, 4%, 8%, 7% and 5% in the company’s Beauty, Grooming, Health Care, Fabric & Home Care and Baby, Feminine & Family Care segments, respectively. Adjusted earnings-per-share equaled $1.66 versus $1.64 in the year ago quarter.

Procter & Gamble also raised its fiscal 2022 guidance, anticipating 3% to 4% sales growth (from 2% to 4%) and 3% to 6% adjusted earnings-per-share growth. While P&G is not a high-growth stock, it generates very consistent growth, even during recessions. This allows the company to keep raising its dividend, no matter the economic climate. Shares currently yield 2.2%.
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Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.