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Dividend Stocks and TIPS: Investment Options Amid Recession Fears

Shaky tariff policies and volatile markets are pushing investors toward defensive strategies in 2025. The S&P 500 has dropped nearly 4% over the past month, while the Nasdaq Composite is down almost 6%.

Goldman Sachs analyst Deep Mehta notes, “As policy uncertainty (particularly around tariffs) weighs on market sentiment and growth expectations, investors have been increasingly looking to play defense.”

Meanwhile, recession concerns are driving interest in dividend-focused investments and inflation hedges like Treasury Inflation-Protected Securities (TIPS). Experts from Goldman Sachs, ProShares, and Ritholtz Wealth Management, alongside former Fed official Loretta Mester, offer insights into navigating this uncertain landscape.

Dividend Stocks: Steady Income Amid Volatility

Investors seeking stability are turning to stocks with strong dividend profiles. We have identified buy-rated names with at least a 2.5% dividend yield for 2025, robust dividend and free cash flow/earnings per share growth (minimum 5% CAGR from 2024-2026), and a dividend coverage ratio of at least 1x. In addition, we spotlight the ProShares Dividend Aristocrats ETF (NOBL), which has outperformed the S&P 500 year-to-date in 2025.

  • Zions Bancorporation (ZION)

    • Dividend Yield: 3.4%

    • Performance: Down 7% in 2025

    • Analysis: With Q4 earnings of $1.34 per share beating estimates of $1.26 (StreetAccount) and net interest income of $627 million topping expectations, ZION offers value. Analyst Peter Winter of D.A. Davidson predicts margin expansion in 2025, raising his price target to $69 (22% upside per LSEG consensus).

  • PepsiCo (PEP)

    • Dividend Yield: 3.7%

    • Performance: Down 4% in 2025

    • Analysis: PepsiCo’s 53rd consecutive dividend hike (to $5.69 annualized) underscores its reliability. Despite a Bank of America downgrade of Q1 sales expectations, consensus targets suggest 11% upside (LSEG).

  • NextEra Energy (NEE)

    • Dividend Yield: 3.2%

    • Performance: Down 2% in 2025

    • Analysis: A 10% dividend increase and its role in renewable and traditional energy make NEE a standout. Analysts see 20% upside (LSEG), with Mizuho’s Anthony Crowdell calling it the “ultimate ‘all forms of energy’ company.”

  • ProShares Dividend Aristocrats ETF (NOBL)

    • Key Holdings: Coca-Cola (2% yield), IBM (2% yield)

    • Performance: Outpacing the S&P 500 in 2025

    • Analysis: Hyman praises its balanced “style box” positioning, offering resilience even if uncertainty clears. Both Coca-Cola and IBM have posted double-digit gains this year.

Other picks include Citigroup, SLB, and Brixmor Property Group, blending income and growth potential.

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TIPS: A Hedge Against Inflation Risks

With stagflation—a mix of stagnation and inflation—on the radar, Callie Cox of Ritholtz Wealth Management advocates for TIPS.

“The bond market is interesting right now because we are staring at inflation risks,” she said on Worldwide Exchange. TIPS protect against unexpected inflation spikes driven by tariffs and policy shifts. “You have to be tactical here; treasuries are the classic economic hedge. I think you have to look at the belly of the curve,” Cox advised, highlighting their role amid unpredictable headlines.

Fed Perspective: Flexibility Amid Uncertainty

Former Cleveland Fed President Loretta Mester commented on Fed Chair Jerome Powell’s recent stance that the economy remains “strong,” with the central bank adopting a wait-and-see approach to Trump Administration policies.

“I think he has it basically right,” Mester said, adding, “The Fed is well placed to respond either way.” However, she cautioned that tariff uncertainty and initiatives like the Department of Government Efficiency (DOGE) could curb spending and hiring. “You have to be contemplating that there could be a more marked slowdown. Not my base case, but you have to entertain that,” she noted, aligning with the defensive tilt in investor sentiment.

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Nothing in this newsletter is financial advice. Always do your own research and think for yourself.