Top 5 dividend shares to buy in a recession

As the UK faces sharp risks of recession, our writer looks at the top dividend shares he’d buy to protect hard-earned savings.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A beach at sunset where there is an inscription on the sand "Breathe Deeeply".

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Prices are rising sharply, including soaring energy bills and food costs. And the Bank of England recently warned that the UK faces a sharp economic slowdown as it raises interest rates to tackle inflationary pressures.

With a recession looming, I want to own relatively stable dividend shares that have the best chance of protecting my capital and providing some regular passive income.

Stable dividend shares

For that reason, I’m thinking of adding SSE and National Grid to my portfolio. I wouldn’t typically pick these utility shares in strong economic environments as there are many alternatives that could grow much faster. That said, their stable cash flows and relatively reliable dividends would be very welcome in a recession.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

They currently yield 4%-5%, and have regularly been paying dividend income to shareholders for almost three decades. That’s an impressive track record.

Defensive pick

I’d also consider buying BAE Systems. This FTSE 100-listed global defence business could be relatively resilient in the face of a slowing economy.

In the four years from 2020 to 2024, the UK annual defence budget is expected to grow from £42.4bn to £48.6bn. And as a result of Russia’s invasion of Ukraine, I’d expect global spending in this sector to rise further. But it’s still too early to say if new defence spending would be temporary or a more permanent shift.

Either way, BAE offers a 3.4% dividend yield and it has been a regular dividend-payer for over 30 years. I like that kind of reliability.

8% dividend yield

Next, I’d want to own Imperial Brands. As the world’s fourth largest tobacco company, it owns several popular consumer brands. This business is highly cash-generative. As such, it can afford to pay a relatively generous dividend yield of 8.2%. That’s far greater than the average FTSE 100 yield of 3.8%.

I’m often cautious of high dividend yields. That’s because there is a chance they can be cut or suspended. But in Imperial’s case, its earnings more than cover its dividend requirements. And it has a 25-year track record that highlights its reliability.

It has a strategy that focuses on profitable western markets in addition to faster-growing next generation products. Bear in mind that trends are changing, so Imperial will need to continue to innovate and adapt to thrive in future.

Cash, cash, cash

Lastly, I’d like to buy oil giant BP. Soaring oil prices are creating bumper profits for the global oil companies. It recently reported profits of $6.25bn. That’s more than double the $2.6bn it reported last year.

The FTSE 100 oil major is generating tremendous cashflow. That has resulted in a 4% rise in its first-quarter dividend and a $2.5bn share buyback. It currently yields 4.2%.

A deep global recession could result in lower oil prices and it’s a factor that I’m watching closely. Overall though, I reckon these dividend shares provide reliable income and they are on my buy list today.

Our analysis has uncovered an incredible value play!

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harshil Patel has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

£20K invested in Tesla stock last April is now worth…

Despite all the bad headlines lately, Tesla stock has put in a storming performance over a 12-month timeframe. Is this…

Read more »

Investing Articles

If a 40 year old invests £600 a month in a SIPP, here’s what they could have by retirement

With no retirement savings at 40, an investor could put £600 a month into a SIPP and grow its value…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Why hasn’t its 9.9% yield boosted the Phoenix share price?

Phoenix Group has a dividend close to double digits, but saw a weak share price performance in recent years. Christopher…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

With average 10% yields, these mid-cap FTSE shares could supercharge a passive income portfolio

Some of the best passive income gems can be found on the UK's smaller indexes like the FTSE 250 and…

Read more »

A coin being dropped into a piggy bank
Investing Articles

As the Barclays share price tanks 19% in 2 days, is this a great buying opportunity?

As a trade war sends the Barclays share price into a tailspin, Andrew Mackie steps back to look at the…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Fundsmith Equity still a good choice for a Stocks and Shares ISA in 2025?

Many Britons hold the Fundsmith Equity fund in their Stocks and Shares ISAs. Is this still a good move? Edward…

Read more »

Investing Articles

Nvidia stock is down 24% this year. Time to buy the dip?

Christopher Ruane has been eyeing Nvidia stock as a potential addition to his portfolio for a while. Is a recent…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Down 25% since January, this resilient dividend stock’s catching my eye

Maintaining the UK’s rail, water, and energy infrastructure isn’t the most exciting business. But it has made this a solid…

Read more »