Please ensure Javascript is enabled for purposes of website accessibility

2 Safe Dividend Stocks for Inflation or Recession

Will high inflation persist? Or will the Fed tip us into recession trying to curtail it? Either way, buy these two safe dividend stocks.


It’s already a bear market. And now, a growing chorus of experts are predicting a recession within the next year. What does this mean for stocks in the months ahead? It means you should be investing in safe dividend stocks, for one. I’ll tell you which two are my favorite in a bit.

The broader S&P 500 index officially fell in a bear market in June, down more than 20% from the high on a closing basis. The index rallied and put in new lows in October before rallying again. But the problems that drove stocks into the abyss in June are not anywhere close to being resolved.

The main culprit is inflation and the Fed’s reaction to it. Inflation continues to rise to levels not seen in 40 years. Meanwhile, the behind-the-curve Fed, which should have acted a year before they did, is being uncharacteristically aggressive in raising rates. The Central Bank has raised the federal funds rate by higher amounts than they have in decades over the last few meetings and have vowed to continue meaningful rate hikes in future meetings.


There is increasing skepticism that this inflation can be tamed without the Fed driving the economy into a recession. Of course, predictions have a way of not panning out. It is possible that we avoid a recession. Inflation could recede all by itself and the Fed won’t have to be as aggressive as currently feared. Commodity prices have already fallen significantly over the last month amidst all this inflation talk. Oil prices, which have played a huge role in driving inflation higher, are down a lot.

But all the Fed’s recent bluster hasn’t done a thing to tangibly quell inflation so far. The October inflation data released this month showed persistently high inflation still at 7.7%, a minor improvement from the June levels of 9.1%. Inflation appears to be laughing at the Fed’s actions to date.

That’s still way high. It’s also worth noting that if CPI was calculated the same way it was 40 years ago, core CPI would be much higher, and worse than most of the 1970s inflation.

There is a strong chance that the Fed will have to be aggressive enough that it drives the economy into a recession to fix this inflation. But there are a lot of negatives associated with that. The Fed may stop short and allow inflation to persist. We’ll see.

It looks like a fight that will leave one man standing at the end, inflation or recession. That’s a problem for investors because different stocks thrive and fall in each situation. Energy and other cyclical stocks that thrive in inflation are not good in a recession. Other defensive plays that work in a recession don’t like inflation.

It’s a conundrum where the best bets right now are with those rare stocks that can endure both situations. Here are two good ones.

2 Safe Dividend Stocks for Inflation or Recession

Safe Dividend Stock #1: NextEra Energy, Inc. (NEE)

Utility stocks are well suited for recession. The sector is the most defensive on the market as earnings are virtually immune to economic cycles. Stocks also pay high dividends and typically hold up very well in down markets.

NextEra Energy provides all those advantages plus exposure to the fast-growing and highly sought-after alternative energy market. It is the world’s largest utility, a monster with about $16 billion in annual revenue and a $164 billion market capitalization.

For the last 10-, five-, and three-year periods, NEE has not only vastly outperformed the Utility Index, it has also blown away the returns of the overall market. How can that be? It’s because it isn’t a regular utility.

NEE is two companies in one. It owns Florida Power and Light Company, which is one of the very best regulated utilities in the country, accounting for about 55% of revenues. It also owns NextEra Energy Resources, the world’s largest generator of renewable energy from wind and solar and a world leader in battery storage. It accounts for about 45% of earnings and provides a higher level of growth.

Investors love it because they get the safety and income of a utility and still get great growth and capital appreciation. It’s the best of both worlds.

From 2004 through 2019 the company grew earnings by an average annual rate of 8.4% and grew the dividend at an average rate of 9.4% per year. That propelled the market returns stated above. The company is targeting 10% annual dividend growth through at least 2022. And NextEra has a long track record of meeting or exceeding goals.

With NEE you get a solid defense utility that can weather a recession with solid returns. At the same time, it operates in a friendly regulatory environment and should easily be able to pass on higher costs to customers in an inflationary environment. You also get the growth of clean energy and the desirability as a conservative play on the trend.

Safe Dividend Stock #2: AbbVie (ABBV)

Investors rediscover the defensive attributes of healthcare stocks in times like this. That’s why healthcare is the second-best-performing sector over the last three months. Healthcare will continue to thrive regardless of the state of the economy.

AbbVie is a cutting-edge company specializing in small-molecule drugs. It has grown into the eighth-largest pharmaceutical company in the world, primarily on the strength of its blockbuster biologic autoimmune drug Humira, which is the world’s number one drug by far with annual sales of about $19 billion.

The stock floundered for a while on fears of Humira losing its American patent in 2023. But investors have since realized that the strength in AbbVie’s pipeline and growing newer drugs on the market can overcome the loss in revenue.

AbbVie has what EvaluatePharma recently called the second best pipeline in all of pharma, with many more drug launches in the next few years. And Humira isn’t likely to disappear. It’s still estimated to be one of the world’s top-selling drugs until at least the middle of this decade.

To further diversify away from dependence on Humira, AbbVie purchased Ireland-based Allergan (AGN) for $63 billion. The company is about half the size of AbbVie and features blockbuster facial treatment drug Botox. The acquisition diversifies the company away from Humira in the near term while the stellar pipeline gains traction.

This is one of the best and most advanced drug companies in the world with the enormous tailwind of the rapidly aging population. The longer-term prognosis is fantastic as the company is effectively addressing the near-term issues.

Despite the fact that ABBV has returned more than 16% YTD in a tough market and 35% over the last year, the stock still sells at a valuation of just 14 times forward earnings.


Tom Hutchinson is the Chief Analyst of Cabot Dividend Investor, Cabot Income Advisor and Cabot Retirement Club. He is a Wall Street veteran with extensive experience in multiple areas of investing and finance.