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This 6.5% Dividend Star Is as Recession Proof as It Gets
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With Fed Chair Jerome Powell very clearly signaling a rate cut of at least 25 basis points ahead of his September 17 conference—and possible as high as 50—you can find no shortage of stock market bulls anticipating a flood of cheap money.
But for over a year now, I’ve said investors should be careful what they wish for…
When it comes to the imminent rate cuts, I’ve warned to “rue the pivot” because falling interest rates usually mean something is breaking in the economy.
This is especially true with a rate cut of 50 basis points or higher. Consider the last two times the Federal Reserve cut rates by 50 basis points in one fell swoop—January 2001 and September 2007.
In both cases, the S&P 500 went on to fall by more than 12% over the next year. And this setup comes as firms and economists ramp up their forecasts for a recession before the end of 2024—most recently with J.P. Morgan Research raising the probability from 25% to 35%.
Whether it’s by the end of 2024 or later, the bill is coming due. No bull market has lasted forever… and as we enter the third year of this one, I’ve spent more and more time thinking about defensive strategies.
When it comes to a hedge against a possible market collapse, I have three criteria:
First, can the investment hold more or less steady, even as the overall market is in freefall?
Second, can it pay a large and growing dividend, to help protect shareholders from the volatility?
Third, is it undervalued—and therefore, offering investors the “margin of safety” that Warren Buffett’s mentor Benjamin used to make up to 500x his initial investment even in the Great Depression’s aftermath?
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