Dividend Stocks

6 Stocks to Buy to Hedge Your Portfolio in a Down Market

  • These six stocks to buy are useful to hedge your portfolio in a down market. These stocks provide stable dividends and have very low valuation metrics.
  • Edison International (EIX): This electric utility company has a 4.2% dividend yield and a forward P/E of 15.24 times with good earnings growth.
  • Chubb (CB): This property and casualty insurer has a 1.55% yield, a low 13.7x P/E and earnings growth forecasts.
  • Cummins (CMI): This large engine maker has a low P/E, 2.88% yield and a low 33% payout ratio.
  • H&R Block (HRB): This tax preparation company has a 3.34% yield, a low 8.98x P/E and a good earnings growth outlook.
  • AbbVie (ABBV): A cheap pharmaceutical company with a 3.69% yield and consistent dividend growth.
  • Allstate (ALL): The insurer has a new $5 billion buyback program and yields 2.64%.
Source: Shutterstock

These six stocks to buy will help you hedge your portfolio in a down market. They all have reasonably stable dividends and good dividend yields along with low price-to-earnings (P/E) valuations. This makes them good investments to own as they will tend to weather downturns much better than other types of stocks.

As a result, investors can be confident that the company will keep on paying its dividends. This will be the case even if a global recession forces many other companies to cut their dividends.

EIX Edison International $64.86
CB Chubb $200.59
CMI Cummins $199.05
HRB H&R Block $33.05
ABBV AbbVie $150.02
ALL Allstate $124.30

Edison International (EIX)

Southern California Edison sign and logo EIX stock

Source: Ken Wolter / Shutterstock.com

Edison International (NYSE:EIX) is an electrical power generator in Southern, Central, and Coastal California with over 15 million customers. The company is forecast to produce $4.52 in earnings per share (EPS) this year and $4.85 in 2023.

At the price of $65.83 on May 18, this puts EIX stock on a forward P/E of 14.6 times. Moreover, given its $2.80 annual dividend, EIX stock has a dividend yield of 4.25%.

EIX has paid a dividend for the past 18 years on a quarterly basis. In fact, it has raised the annual dividend every year for the past 18 years. That should give investors comfort that this will occur in the future, recession or not. This fact will allow EIX to hold up well during a possible economic downturn.

The fact is that everyone needs to buy electricity and pay their electric bills even during a recession. That makes EIX one of the best dividend stocks to own now to weather a possible recession.

Chubb (CB)

Person holding cellphone with logo of Swiss insurance company Chubb Limited on screen in front of business webpage. CB stock.

Source: T. Schneider / Shutterstock

Chubb (NYSE:CB) is a major property and casualty, reinsurance, and workers’ comp insurance company. It makes fairly steady earnings. For example, Chubb’s earnings are forecast to rise almost 20% to $15.04 this year. Next year, analysts see the company’s EPS rising 12.3% to $16.89 per share.

Therefore, at a price of $207.31 on May 18, this puts CB stock on a forward P/E of 12.3 times forecast 2023 earnings.

Moreover, Chubb has paid an 80 cent dividend for the past four quarters and is likely to raise it soon. It raises the quarterly dividend to 85 cents, its annual dividend will be $3.40. That will give it a prospective yield of 1.64%. Even if the dividend is kept stable, the yield going forward will be 1.54%.

This makes CB stock one of the best-undervalued dividend stocks going forward. Its low P/E, earnings growth, dividend yield, and consistent dividend should help it weather a severe recession fairly well.

Cummins (CMI)

A Cummins (CMI) sign in bright red.

Source: Jonathan Weiss / Shutterstock.com

Cummins (NYSE:CMI) is all about making and servicing large diesel and natural gas engines. It pays a $5.80 dividend per share (DPS), which represents a low 33% of its forecast $17.62 EPS for 2022. Thus, at today’s price of $204.16, Cummins’s dividend provides an ample yield of 2.84%.

Moreover, in its latest quarter ending March 31, Cummins bought back $311 million of its shares. It plans to return approximately 50 percent of operating cash flow to shareholders in the form of dividends and share repurchases.

Analysts now project that its EPS for 2022 will reach $17.62 in 2022 and $20.31 in 2023. This puts CMI stock on a forward P/E multiple of just 11.9 times for 2022 and 10 times for 2023.

This makes CMI stock one of the best stocks to buy today.

H&R Block (HRB)

H&R block storefront in Canada. HRB stock.

Source: TippyTortue / Shutterstock

H&R Block (NYSE:HRB) provides do-it-yourself tax preparation software and tax preparation services. It has a very strong brand name in this field.

Analysts now forecast that this year, the company will make $3.41 per share and $3.53 in 2023. So, at a price of $33.33 on May 18, HRB stock has a forward P/E multiple of 9.4x.

Given its dividend of $1.08 per share, the stock has a high dividend yield of 3.24%. Moreover, the company has paid out a dividend every year for the past 32 years.

That should give investors a high level of comfort that it will keep paying dividends, even if there is a severe recession. Additionally, analysts expect higher earnings next year, even if there is a recession, because, after all, everyone has to pay their taxes. Its revenue, earnings, and dividends will always be fairly solid, making it one of the best stocks to buy in a recession.

AbbVie (ABBV)

ABBV Stock: Offering Oil Yield Without Oil's Risk

Source: Piotr Swat / Shutterstock.com

AbbVie (NYSE:ABBV) is a profitable pharmaceutical company that has an attractive 3.64% dividend yield. It is known for its Humira drug, for rheumatoid arthritis and Crohn’s disease, and other drugs like RINVOQ for severe active rheumatoid arthritis.

ABBV stock trades on a cheap forward P/E of just 10.9x for this year and 12.7x next year’s earnings forecasts. Last year its sales were up 22.7% and this year it is forecast to rise over 10%.

Last year AbbVie generated over $17 billion in free cash flow (FCF). It used that to pay out $9.26 billion in dividends. That leaves it plenty of room to pay higher dividends and buy back its shares.

It spent about $934 million in buybacks last year. This makes ABBV stock one of the more secure undervalued stocks to own for the long term and even during a recession.

Allstate Corp (ALL)

Allstate logo and storefront

Source: Jonathan Weiss / Shutterstock.com

Allstate (NYSE:ALL) is a global insurer that focuses on property and casualty insurance.  The stock has a low P/E of 14.1x this year’s EPS and 9.8x next year’s EPS expectations. This is taken from an average of 16 analysts surveyed by Refinitiv (Yahoo Finance).

It also has a solid 2.66% dividend yield. This includes 12 consecutive years of dividend growth and 28 consecutive years of dividend payments, according to Seeking Alpha. Moreover, it recently announced a new $5 billion buyback program.

The fact is that people will keep paying their car, home, and other property insurance bills even during a recession. This is because they have to and it’s ingrained in American financial psychology to do so.

This makes Allstate one of the top undervalued stocks to buy for the long term, even with a recession or high inflation.

On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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