It has been 10 long years since the Great Recession of 2008-2009, and the world has seen an extended era of low-interest rates and steady, consistent growth. However, of late, there have been rumblings of an impending global slowdown, and these fears have been exacerbated by the US-China trade war. Many economists are also warning of danger signs in the bond market, and a few have even gone so far as to predict a recession in 2020.
Naturally, this is worrisome for investors because a recession will affect the value of their investments, and it may also crimp the level of dividends they are receiving. One recommendation I have is to purchase strong, well-run companies that are resilient to economic shocks. Such companies are usually found in anti-cyclical industries, meaning they do not follow the usual ebb and flow of demand that hinges on the strength of the economy.
Here are two companies to consider owning if you are worried about an impending downturn.
1. Riverstone Holdings Limited
Riverstone Holdings Limited (SGX: AP4) is a manufacturer of nitrile and natural rubber cleanroom gloves used in the electronics and semiconductor industries, as well as premium nitrile gloves for the healthcare industry. The group has six manufacturing facilities located in Malaysia (4), Thailand (1), and China (1), it employs more than 3,000 people, and it has an annual production capacity of 9 billion gloves as of 31 December 2018.
Riverstone’s nitrile gloves are sold to healthcare institutions all over the world, and they provide essential consumables for this industry to survive. The healthcare industry is known to be resilient to economic downturns, and Riverstone should, therefore, enjoy consistent demand through all economic cycles.
Revenue has been growing by 14.6% year on year, as reported in its first-quarter 2019 earnings, while earnings were flat due to higher expenses. Phase 6 expansion plans are on track for the group to raise its capacity to 10.4 billion gloves per year by the end of 2019. The group pays dividends twice yearly (5.45 Malaysia sen final and 1.3 Malaysian sen interim) for a total of 6.75 Malaysia sen, which translates to roughly around 2.2 Singapore cents. The historical dividend yield is therefore around 2.4% at the last traded price of S$0.92.
2. Mindchamps Preschool Ltd
Mindchamps Preschool Ltd (SGX: CNE) owns premium range preschools in Singapore and holds the No. 1 position with a market share of 38.5%. The group also maintains a global presence with premium preschools and enrichment centres in countries such as Australia, Abu Dhabi, Philippines, Vietnam, Myanmar, and Malaysia.
Education is one of two industries that usually remain resilient during a crisis, and investors can rest assured that parents will generally not compromise the quality of their children’s education unless they absolutely cannot help it. As one of the leading preschools in Singapore, Mindchamps enjoys good brand recognition, and it also has a great track record of delivering quality education.
The most recent news on Mindchamps was an announcement in June that it was purchasing Mindchamps Preschool @ Buangkok Pte Ltd for a consideration of S$3.23 million. With plans to grow steadily, Mindchamps should be able to increase student numbers over time. The group paid out a final dividend of 1.34 Singapore cents, providing investors with a 2.2% dividend yield.
Stability compensates for low dividend yields
Investors may frown on the low dividend yields for these two companies, but I feel their stability and resilience during downturns compensates for the apparent low yield. If these businesses continue growing, the dividends per share they pay out could also increase in the future.