2 Dividend Stocks to Buy in a Recession

While many economists and investors initially expected 2025 to be another good year, the outlook in America has soured rapidly as steep tariffs and a softer labor market appear set to increase prices and curtail growth.

Recently, JPMorgan Chase analysts raised their predicted recession risk for the year from 30% to 40% due largely to America’s emerging trade wars.

With the chances of a recession this year seemingly increasing, let’s look at two stocks that could be good buys for their ability to ride out what could be hard times ahead.

Dollar General

During downturns, consumers tend to seek out more affordable alternatives to their usual purchasing habits in order to stretch their dollars farther. Probably the most famous beneficiary of this is Costco (NYSE:COST).

Shares of the membership-driven retailer, however, are currently trading at over 50x earnings, potentially making them too expensive for investors to get into right now.

Fortunately, a much more value-friendly option that also benefits from consumers trying to stretch their budgets exists in the form of Dollar General (NYSE:DG).

Dollar General currently trades at a modest P/E ratio of 15.5 and a 0.4 price-to-sales ratio. The company also enjoys a decent moat, particularly in rural communities where it is often the only national chain retailer.

This low pricing comes despite the fact that Dollar General has had four consecutive quarters of revenue growth, though it’s worth noting that earnings have been declining amid rising costs.

The company also produces respectable profitability for its investors, boasting a trailing 12-month return on invested capital of 8.1% and a return on equity of 15.7%. As such, there’s still a decent chance that DG shares could be undervalued relative to the performance of the business.

Dollar General is currently in a bit of a quiet period growth-wise, but the onset of a recession is very likely broaden its customer base.

In Q4, stores that had been open for a year or more saw their sales rise just 1.2%. Management attributed this fact to worsening finances among the low-income Americans who make up the chain’s core customer base. When their budgets are pressured, however, many consumers who would usually shop at more expensive stores trade down to dollar stores.

It’s important to acknowledge that this shift hasn’t materialized yet, but tougher times ahead is likely to convince more consumers to spend their money at budget retailers like Dollar General. During 2008-09, for instance, DG reported two consecutive years of same-store sales growth that approached double-digit territory.

If the combination of higher inflation and a tariff-driven recession takes place, it’s quite likely that Dollar General will once again see its sales increase as more Americans seek out value buying options.

In addition to standing to benefit from more cost-conscious consumers, Dollar General also offers shareholders a rather healthy dividend yield of 3.0%. Dividends can be very helpful during recessions, as they deliver a predictable stream of cash income that can support higher total returns. With its payout ratio still under 50%, Dollar General’s dividend is likely a fairly safe bet for generating income during challenging economic times.

Realty Income

Realty Income (NYSE:O) is a real estate investment trust with an incredible track record of dividend increases and a rather high yield. The trust has successfully raised its dividend 130 times since it first went public in 1994.

Today, O shares pay $3.22 annually and yield 5.7%. One particularly useful aspect of Realty Income for those looking for immediate cash flows from their portfolios is the fact that it’s one of the few stocks that pays dividends monthly instead of quarterly.

In a recession, Realty Income has a number of potential benefits. To begin with, Realty’s assets are in physical pieces of real estate that continue to produce rental income as long as they’re occupied. Real estate also doesn’t tend to follow the stock market very closely, meaning that the assets under Realty Income’s control won’t necessarily lose value just because a stock market correction or a bear market is taking place.

The diversification of Realty Income’s portfolio is another very strong suit during a recession because higher tenant types lowers the trust’s overall risks. The two largest property categories in the Realty Income portfolio are convenience stores and grocery stores, both of which make up just over 10% of the total real estate holdings.

These are also two types of businesses that tend to be fairly recession-resistant because consumers will likely visit them periodically regardless of economic conditions. Dollar stores, home improvement stores and quick-service restaurants round out the top five types of real estate owned by Realty Income.

Finally, Realty Income acts as a landlord to a number of large, economically successful tenants that are likely to fare well under even challenging conditions. Among the company’s top 20 tenants are the likes of Walgreens, 7-Eleven, Home Depot and Walmart. With companies like these as its largest tenants, Realty Income is partially protected by the moats of other businesses.

Realty Income also has an impressive practical history of operating successfully in recessions. During the 2008 financial crisis, for instance, O was among the few REITs that never cut its dividend. Indeed, the trust was able to keep raising its monthly payout during both the Great Recession and the 2020-21 era. 

Between a very high dividend yield, a portfolio of assets that’s largely protected from declines in the stock market and a diversified tenant base made up of large, economically resilient companies, there’s a lot to like about Realty Income when recessions come around.

Though there is no slam dunk 100% certainty during a recession, Realty Income’s level of insulation and its track record of raising dividends during even the worst economic downturns could both be encouraging for investors preparing for a recession later this year.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.