The current stock market sell-off has been difficult to stomach. The S&P 500 is approaching bear market territory, tumbling almost 20% from its recent peak. Meanwhile, the tech-heavy NASDAQ Composite has experienced an even more ferocious downdraft of nearly 30%. There's a lot of concern that there might be more downside ahead if inflation-driven interest-rate increases plunge the economy into a recession.
Given the current market environment, many investors are looking for ways to solidify their portfolios by adding more durable businesses to the mix. Three companies that operate resilient businesses are utility Duke Energy (DUK 0.28%), real estate investment trust (REIT) Realty Income (O -0.19%), and collections company WM (WM 0.85%).
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Steady as it gets
Electricity demand tends to be relatively stable during a recession because homes and businesses need to keep on the lights. That enables electric utilities like Duke Energy to generate steady earnings. Because of that, it has the funds to pay a stable dividend -- which in Duke's case yields 3.7% -- and invest in expanding its operations. That resiliency is why Duke's share price is only down about 6% from its peak despite the carnage in the broader stock market.
Duke recently reaffirmed its forecast that it can grow its earnings by 5% to 7% per year through 2026. Powering that outlook is the underlying resiliency of its business and its heavy investment in clean energy. That growing earnings stream should enable Duke to continue increasing its dividend. Because of that, Duke can help produce a nice steady baseload return for investors, which can go a long way in solidifying their portfolios.
The definition of durability
Realty Income focuses on owning durable commercial real estate. The real estate investment trust (REIT) owns a diversified portfolio of income-producing real estate anchored by single tenants like grocery stores, convenience stores, pharmacies, warehouses, and quick-service restaurants. Overall, 94% of its rent comes from tenants resilient to economic downturns or isolated from the pressures of e-commerce. Meanwhile, 43% of its tenants have investment-grade credit ratings. These features enable the company to collect durable rental income no matter the environment.
That resiliency has been on full display via the REIT's dividend. Realty Income has paid a dividend for 623 consecutive months. Furthermore, it has increased that payout 115 times since its initial public offering (IPO) in 1994, including the last 98 consecutive quarters.
While interest rate fears have caused the REIT's stock price to fall 10%, it continues to be much less volatile than the broader stock market. Meanwhile, the lower stock price has pushed its dividend yield up to an even more attractive 4.4%. Because of that, it can be a great way to help cushion some of the blow if the market falls further.
Cashing in on the resiliency of trash
Much like electricity usage, demand for waste collection tends to be pretty stable in any economic environment. That's helped waste collection company WM generate steady earnings and cash flow over the years. Those durable cash flows have enabled it to expand its operations, supporting steadily rising cash returns to shareholders.
WM is making several investments to support future growth while making the world more sustainable. It's spending $200 million on new recycling investments and $825 million through 2026 on renewable natural gas. It also formed a joint venture to upcycle plastics and fiber into roofing and other building materials.
Growth-focused investments like those have enabled WM to steadily expand its earnings, allowing it to send more money back to shareholders. WM unveiled a 13% dividend increase late last year, its 19th straight year of increasing the shareholder payout. The collections company also boosted its share-repurchase authorization up to $1.5 billion. That additional buyback capacity will come in handy with the stock falling about 10% amid the market sell-off, enabling it to buy back even more shares.
Resilient business for these uncertain times
It's challenging to be an investor these days. There are a lot of unknowns, including how some businesses might fare during a recession.
However, Duke Energy, Realty Income, and WM have proven their resiliency during times like these in the past. Because of that, they can help put a more solid foundation under an investor's portfolio and help them get through this currently difficult period.
