Why Recession-Proof Stocks Matter for Investors
With economic uncertainty, inflation concerns, and interest rate fluctuations, many investors are looking for recession-proof stocks to protect their portfolios. While recessions can cause market downturns, certain US stocks have historically outperformed during economic slowdowns.
We will cover on this article:
- What makes a stock recession-proof?
- Top US stocks to buy for a recession-proof portfolio in 2025
- Which sectors perform best during downturns?
- How UK investors can invest in US defensive stocks
Quick Answer:
- Defensive sectors like consumer staples, healthcare, utilities, and dividend-paying stocks tend to perform well in recessions.
- Some of the best recession-resistant stocks include Johnson & Johnson, Procter & Gamble, and McDonald’s.
- UK investors can buy these US stocks via brokers like Hargreaves Lansdown, Interactive Brokers, or Trading 212.
1. What Makes a Stock Recession-Proof?
A recession-proof stock is one that:
- Provides essential products or services that people continue to buy during downturns (e.g., healthcare, utilities, food).
- Has strong cash flow and low debt, ensuring financial stability in tough times.
- Pays consistent dividends, providing income even when stock prices drop.
Sectors That Perform Best in a Recession
- Consumer Staples (Food & Household Products) – People still buy essentials like food, cleaning products, and toiletries.
- Healthcare – Medical needs don’t decline, making pharmaceutical and healthcare companies resilient.
- Utilities – Electricity, water, and gas are essential services that remain in demand.
- Discount Retailers – When money is tight, consumers shift to budget-friendly retailers.
- Dividend Aristocrats – Companies with a strong history of dividend growth offer stability. We listed some of the top Dividend Aristocrats stocks and also the Top 25 Dividend Champions Stocks if you wish to be more diversified.
Now, let’s look at the best US stocks for a recession-proof portfolio in 2025.
2. Best US Stocks to Buy for a Recession-Proof Portfolio
1. Johnson & Johnson (JNJ) – A Healthcare Giant
- Why it’s recession-proof:
- One of the world’s largest healthcare and pharmaceutical companies.
- Essential products like bandages, baby powder, and medicines stay in demand.
- Dividend Aristocrat with over 60 years of consecutive dividend increases.
- Current Dividend Yield: ~3.0%
2. Procter & Gamble (PG) – Essential Household Goods
- Why it’s recession-proof:
- Sells everyday essentials like shampoo, toothpaste, and detergent (Tide, Pampers, Gillette).
- Revenue remains stable because people still buy personal care items during downturns.
- Strong dividend payer with a 4% annual increase over 50+ years.
- Current Dividend Yield: ~2.5%
3. McDonald’s (MCD) – Affordable Dining During Recessions
- Why it’s recession-proof:
- When the economy struggles, people opt for cheaper food options, boosting McDonald’s sales.
- Global brand with a strong presence in over 100 countries.
- Dividend Growth Stock, consistently increasing payouts.
- Current Dividend Yield: ~2.2%
4. Walmart (WMT) – Discount Retail Leader
- Why it’s recession-proof:
- Consumers shift to discount stores when times are tough.
- One of the largest grocery retailers in the US.
- Continues expanding into e-commerce and grocery delivery for long-term stability.
- Current Dividend Yield: ~1.5%
5. Costco (COST) – Bulk Shopping in Economic Downturns
- Why it’s recession-proof:
- Shoppers buy in bulk to save money on essentials during recessions.
- Membership-based model creates a steady revenue stream.
- Stock price has outperformed even in previous downturns.
- Current Dividend Yield: ~0.7%
6. Coca-Cola (KO) – Consumer Staple & Dividend King
- Why it’s recession-proof:
- Beverage giant with strong global demand even in recessions.
- People continue buying soft drinks, making it a stable investment.
- Dividend King with over 60 years of dividend growth.
- Current Dividend Yield: ~3.2%
7. Duke Energy (DUK) – Reliable Utility Stock
- Why it’s recession-proof:
- People always pay for electricity and gas, even in a downturn.
- Stable revenue from utility bills ensures cash flow.
- Long-term dividends, ideal for passive income investors.
- Current Dividend Yield: ~4.1%
8. Berkshire Hathaway (BRK.B) – Warren Buffett’s Defensive Giant
- Why it’s recession-proof:
- Owns diversified recession-proof businesses (insurance, utilities, railroads).
- Historically outperforms the S&P 500 in market downturns.
- No dividends, but focuses on long-term capital growth.
3. How UK Investors Can Buy Recession-Proof US Stocks
UK investors can buy recession-proof US stocks through several platforms:
- Hargreaves Lansdown – Easy access to US shares, but higher fees.
- Interactive Brokers – Low-cost trading for long-term investors.
- Trading 212 – Commission-free US stock purchases.
- Freetrade – Simple investing app for UK investors.
Tax Considerations for UK Investors
- US dividends are taxed at 30% for UK investors, but this can be reduced to 15% by filing a W-8BEN form.
- Capital gains tax (CGT) applies in the UK, not the US.
- Holding US stocks in an ISA avoids UK taxes, but 15% US dividend tax still applies.
We have a little Tax Guide for UK Investors on Crypto and Stock gains
4. Building a Recession-Proof Portfolio: Suggested Allocation
For UK investors looking to diversify into defensive US stocks, here’s an ideal portfolio mix:
| Stock Type | Example Stocks | % Allocation |
|---|---|---|
| Consumer Staples | Coca-Cola, Procter & Gamble | 30% |
| Healthcare | Johnson & Johnson | 20% |
| Utilities | Duke Energy | 15% |
| Retail & Food | Walmart, McDonald’s, Costco | 20% |
| Diversified Holdings | Berkshire Hathaway | 15% |
The Best US Stocks for a Recession-Proof Portfolio in 2025
Recessions can be challenging, but investing in the right US stocks can help protect your portfolio.
- Consumer staples, utilities, and healthcare stocks remain strong performers during downturns.
- Dividend stocks like Coca-Cola and Johnson & Johnson provide steady income.
- Holding US stocks in a SIPP or ISA helps UK investors reduce tax burdens.
For long-term financial stability, consider adding recession-resistant stocks to your portfolio today.
Which recession-proof stocks are you investing in? Let us know in the comments!
