11 Best Consumer Cyclical Dividend Stocks to Buy Now

When the economy is expanding, companies use more steel to construct buildings, cars, and other industrial goods. However, it’s holding up in 2022 because people still want to enjoy these experiences after having to hold back during the early stages of the pandemic. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. Cyclical stocks are often further delineated by durables, nondurables, and services. Durable goods companies are involved in the manufacture or distribution of physical goods that have an expected life span of more than three years. Companies that operate in this segment include automakers such as Ford, appliance manufacturers like Whirlpool, and furniture makers such as Ethan Allen.

You can use them to reinvest and purchase more shares or you can take dividends as cash payments. This chart clearly demonstrates how each company’s share price reacts to downturns in the economy. Investing in non-cyclical stocks is a good way to avoid losses when highly-cyclical companies are suffering. Cyclical industries make or sell products that we can live without or delay buying when times are tough.

Sometimes analysts break down cyclical stocks into consumer and non-consumer. A non-consumer cyclical would be a company that sells to businesses, governments, or large organizations and which is also sensitive to the state of the economy. A consumer cyclical would be a cyclical stock that markets to individuals or households. If the domestic economy does strengthen, consumer cyclicals that offer dividends may generate a nice blend of growth and income in 2024. The cash cushion they provide may also offer protection for investors weary of the market’s record highs.

But as it cools, consumer spending will shift towards less economically-sensitive sectors. Costco Wholesale Corp. (COST) is a good example of a consumer staple stock. Costco makes most of its money from membership premiums, and in down markets, most people keep their Costco memberships to acquire discounted food, clothes, and other products. This was demonstrated in the 80% rise of Costco’s stock price from a level around $311 in early March 2020 to a closing price of about $558 in early December 2021.

In recent years, it has enjoyed strong demand not only in the U.S. but also worldwide. Home Depot, the largest home improvement specialty retailer worldwide, operates around 2,300 warehouse-format stores across North America. Due to solid demand, the automaker is doubling its annual F-150 Lightning production to 150,000 trucks. Management predicts EVs to account for up to half of its global vehicle sales volume by 2030.

1. During economic downturns, consumers spend less on discretionary items like cars and vacations.
2. They offer the potential for capital appreciation and sometimes dividends, contributing to portfolio diversification.
3. Therefore, stocks in the automotive industry, consumer durables, airlines, luxury goods makers, and hospitality stocks would be prime examples.
4. When the economy does poorly, these discretionary expenses are some of the first things consumers cut.

Besides being tied to enterprises’ spending trends, semi-conductors also depend on discretionary consumer purchases (e.g. smartphones, laptops, devices), which decrease during downturns. Because they tend to move in cycles, https://bigbostrade.com/ it’s important to time your investment. Investing too early or too late in the cycle could lead to losses. For example, if you invest just before a recession, you could see your investment lose value quickly.

Consumer Cyclical Stocks: Royal Caribbean Cruises (RCL)

Investors seeking long-term growth with managed volatility tend to balance their portfolios with a mix of cyclical stocks and defensive stocks. Consumer cyclicals is a category of stocks that rely heavily on the business cycle and economic conditions. Consumer cyclicals include industries such as automotive, housing, entertainment and retail. The category can be further divided into durable and non-durable sections.

Four main stages of the economic cycle

But trying to predict the timing of a future recession or expansion is a losing battle. To be clear, none of the companies on these lists are perfectly cyclical or perfectly defensive. Depending on the circumstances of a specific recession, some of the cyclical names could do relatively well. Meanwhile, the defensive stocks could see profits significantly decline. However, these are still good examples of stocks that generally behave either cyclically or defensively.

McDonald’s Corporation (NYSE:MCD)

The automotive industry is cyclical due to several external factors like seasonal changes in demand, third-party production, and interest rates. The demand trend keeps shifting and isn’t stable and depends mainly on consumer purchasing power. Back in 2020, due to a sudden rise in unemployment and a decrease in consumer spending, revenues for the car manufacturing industry suddenly dropped. The performance of non-cyclical stocks is less dependent on the economic shifts, they tend to keep their value even if the economy is in recession. Defensive stocks are for example of companies that offer groceries, gas, or water, these are generally non-cyclical.

These stocks are most vulnerable to economic downturns but perform well when the economy is booming. Examples of cyclical stocks include manufacturing, raw material production, and energy companies. Even though investing in stocks can be risky, some types are more volatile and unpredictable than others.

A 66% payout ratio, while high, doesn’t necessarily mean Hasbro is in danger of having to cut its dividend. It does, however, imply that only about one-third of earnings will be retained for future growth projects. First, if rates drop and inflation pressures subside as expected, American households will have increased spending power. Budgets would get an even greater boost from continued wage growth. Companies that benefit from stronger discretionary spending would in turn earn higher profits and see their stocks go up.

When the economy slows — as it did during the pandemic — fewer people book trips using Expedia’s websites. You’ll have capital gains income if you can sell your shares for more than your investment in them, including any trading forex spreads fees. These discretionary expenses are some of the first things consumers cut when an economy does poorly. Cyclical stocks can become completely worthless if a recession is severe enough and companies may go out of business.