The stock market is plummeting.  Recession is here, everyone.  Dividend stocks have never looked better in the last 2 years and your future self will thank you for investing in a recession.

Though it may be hard, continue to stay invested, don’t time the market and run in, when others are running out.

Therefore, I put together a few stocks I am watching and considering to buy, when investing in a recession!

Investing in a recession

Another dividend stock watch list!  The stock market has been more volatile than ever since the pandemic of 2020.  What does that mean?  New undervalued dividend stocks are coming to light baby!  It’s all about buying dividend income producing stocks – the best source of passive income source on your journey to financial freedom!

The stock market, specifically the S&P 500, is still hanging above 4,000.  I didn’t think we’d be here, with all of the negative news going on. 

From the all-time highs of 4,800, dropping below 4,000 and holding steady now above 4,000 the last  4 to 5 weeks.  We were in recent bear territory, but have come back up from being down over 20% to now down 15%.  What a volatile time period we are in!  Chart is below:

Interest rates on the high yield savings accounts have hit a plateau somewhat, hovering around 2%.  Fed raises rates again by 75 basis points in September and we may see another 75 basis points come the beginning of November.  SoFi and Ally have great historical savings rates, and I use both.

I keep MORE savings in my SoFi savings account – as it earns me 2% on my checking AND savings account!  Completely blowing other products out of the water.

Related: 3 Financial Freedom Products I’m Using to Finish off 2022!

In addition, I’ve been buying stocks on SoFi’s investing application (hint, if you sign up YOU get free stock!  You can automatically buy partial shares as frequent as you want.  Absolutely love investing with SoFi and cannot stop recommending their platform.

What else has been going on?  I have been investing more and more into Fundrise, as of late – finally crossing over $15,000+ invested there.  See my Q2-2022 review.

In addition, given the uncertainty, I continue to make smaller, weekly investments into Vanguard Exchange Traded Funds (ETFs).  The specific ETF my wife and I have been loading up on is Vanguard High Dividend Yield (VYM).  We are investing approximately $400-$500 per week into Vanguard (pending the VYM stock price), to stay invested in the market, during the uncertain times.  In addition, I am also investing $60 per day into Vanguard S&P 500 ETF (VOO)!  I was doing $50 but recently increased this to $60 on 7/25.

Related: Why I’m Investing $500 Weekly with Vanguard ETFs

Related: Dividend Investing Strategy Added – BUYING $50 per day of VOO

Therefore, on the road to financial freedom, acquiring assets that produce cash flow or income is the goal!  Like I always say, there is always a diamond in the rough.  How do I find an undervalued dividend stock?  Time to introduce our beloved Dividend Diplomat Stock Screener!

Dividend Diplomat Stock Screener

If you don’t know already, we keep the stock screener metrics to THREE SIMPLE items.  They are:

  1. Price to Earnings Ratio – We look for a price to earnings ratio < than the overall Stock Market.
  2. Payout Ratio – We aim for a payout ratio between of less than 60%.
  3. Dividend Growth – We like to see history of dividend growth in a company.

Time to find the answer to… how did the dividend stocks on my watch list grade on the stock screener?

Dividend stock watch list

Here is the list of dividend stocks that I consider stocks to watch when investing in a recession.  I typically like to keep it at 2-3 dividend stocks, keeping the focus locked in.  Finding dividend stocks isn’t easy, but there are also other factors, such as composition of my portfolio by industry (such as – am I overweight/underweight in an industry), as well as exposure to one stock and the concentration there.

There, the dividend stocks on my list cater to those other facets when building a dividend stock portfolio.

Diageo (DEO)

Diageo (DEO) is still on my watch list.  Why?  I liked them if they entered the sub $175 price range.  Guess what?  They broke below that stock price and Diageo trades below $167!

Diageo is a deep liquor and adult beverage company.  They are in 180 countries, over 200 brands of alcoholic beverages with over 27,000 employees, based in England.  This beverage company started on my watch list at $190.44.  Then, on my September dividend stock watch list they were at $179.58.  Diageo stock is now down almost $13 since last month or another 7% discount.

Therefore, this increases the dividend yield and dividend stock metric ratios.  That is what I think it’s now an even better time to buy this stock, who doesn’t love a stock when it is on sale?  Diageo is a recession proof stock, as, sadly, people flock to drinking during tough times.  I’ll cheers to the good times, folks!

Here is a summary in picture form of some of their brands:

Diageo, since they sell and distribute alcoholic beverages, tend to fare better during recessionary and inflationary time periods.  Most People continue to drink and consume, and Diageo passes on cost increases down to the consumer.  In addition, they recently released their latest earnings – net sales are up a staggering 21.4%!

First, however, we MUST run Diageo through the Dividend Diplomats Stock Screener, which is focused on these 3 metrics.

  1. Price to Earnings Ratio: Earnings is approximately $8.15 in earnings per share.  Therefore, the stock is trading at approximately 19.6x (Finally below 20x!) current earnings.  Next year, analysts do estimate  to be approximately $8.51 in EPS.  However, the stock is still trading a tad on the high side, but they are finally showing more value!
  2. Payout Ratio: Diageo’s dividend is paid 2x per year – once in April and the second dividend in October.  This is an American Depository Receipt (ADR), since they are based in UK.  Therefore, they announce their dividend in Pence, but the conversion is approximately $4.077 in a forward, total dividend.  They stick to a 50% dividend payout ratio policy (i.e. 1.8 to 2.2 earning coverage).  Therefore, they are always in that sweet spot, the perfect payout ratio range.
  3. Dividend Growth: Since they are an International based company, Diageo’s dividend growth is hard to say.  Therefore, I thought the chart would be nice to showcase below.  The trend is up needless to say, over the last 10 years.  Drinks keep flowing and the dividend keeps growing!

The dividend yield is at 2.44%, up from earlier this month dividend yield of 2.28%.  In addition, Diageo yields well above the S&P 500 and is a better yield on average than the majority of high quality stocks.  I’ve owned them for years and this is definitely a recession and inflation proof stock – always being used and can pass on the costs to the consumer.

United Parcel Services (UPS)

UPS – the brown truck.  The is a big dividend stock to consider when investing in a recession.  Holiday season is still coming, COVID-19 is still a real thing and UPS will still be used to deliver goods all over the world.

Now, FedEx released a terrible statement about the dismal outlook, which I do agree with.  Therefore, it isn’t that FedEx is lying, simply that this shuttered all delivery and transportation stocks – such as UPS!

This isn’t about FedEx though and is about UPS.  UPS stock price after this announcement, as well as after the Fed increasing rates by 75bps, again, sent the price in a downward spiral.  On September 12th, UPS was trading over $200 per share.  The stock price has retreated a whopping $36 or 18% since then!  See the chart:

UPS is still a beast in the industry and is a great dividend growth stock.  Is it time to buy UPS stock at these prices?  Time to look at the metrics below.

1.) P/E Ratio: UPS analysts are anticipating $12.87 of earnings for the year 2022.  At a share price of $164.33, the p/e ratio is ~12.8x earnings.  Talk about value!

2.) Dividend Payout Ratio: UPS currently pays a $1.52 per quarter or $6.08 per year.  Therefore, a perfectly safe dividend payout ratio of 47%!  Plenty of room to keep growing the dividend.

3.) Dividend Growth Rate: UPS grew their dividend by 49% this year.  This put their dividend streak at 12+ years of growing dividends.  The average growth rate is a little over 6%.

Lastly, we’ll take a look at the dividend yield.  As an investor, you want to know how much owning this dividend stock pays you now!  The yield for UPS is NOW 3.70%!  Just incredible

At the share prices – is it time to buy UPS below $165?

Canadian Imperial (CM)

We are bringing a top 6 bank in Canada to the dividend stocks I am watching.  I have owned Canadian Imperial (CM) for so many years, it may be go back to almost 10 years at this point.  This has been a dividend paying and growing machine for me.  You have to love the big 6 banks in Canada.

Canadian Imperial has seen their stock price decline by almost 12% over the last month.

The financial institutions industry has proven to be resilient over the last decade.  They learned their lesson from the financial crisis in 2007-2009, no doubt.  Let’s dive into the metrics of Canadian Imperial stock to see if this is a great time to buy this stock now!

1.) P/E Ratio: Canadian Imperial analysts are expecting earnings of $5.54 for the year 2022.  At a share price of $44.80, the price to earnings ratio is only 8x earnings.  WOW.  Talk about another stock showing immense value.

2.) Dividend Payout Ratio: CM currently pays, in USD translation terms, around $0.635 per share, per quarter (someone can correct me here).  Therefore, the dividend payout ratio is 46%.  Extremely safe, yet again.

3.) Dividend Growth Rate: CM has grown their dividend over 11 straight years, you can see the chart below.  Due to translation rates, always hard to gauge the percentage, but the dividend trends up!

Lastly, we’ll take a look at the dividend yield.  As an investor, you want to know how much owning this dividend stock pays you now!  The yield for CM is NOW over 5.65%!

Is this a

Dividend Stock Watch List Conclusion

Dividend investing is real and is happening!  Here is our latest video covering our recent dividend stock purchases:

Of course, prior to making any purchase, I definitely will make sure to run them through the Dividend Diplomat Stock Screener once more.

I love all 3 stocks at current prices.  No specific order, but I would love to actually build a larger Diageo (DEO) stock position, since it’s small in the relative scheme of my portfolio.  Then, I’d transition to averaging down on UPS and scooping up a share here and there of UPS.  Do you think these are great stocks to buy when investing in a recession?

Related: 5 Reasons Dividend Income is the Easiest Passive Income Source

As you have noticed, I have trickled many articles on this page.  The goal is to educate new dividend investors out there, or to sharpen the terminology for current dividend investors.  As always, stick to your investment strategy and dividend stocks will be there.  What do you think of these stocks above?  Thank you, good luck and happy investing everyone!


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