3 Defensive Dividend Stocks to Buy for Recession-Proof Gains

The stock market is undergoing a record rally that hasn’t happened in decades. 2025 could be the third year in a row in which the S&P 500 delivers over 25% in total returns. The outlook could get even rosier if the Federal Reserve cuts interest rates and smoothly guides the economy to more growth. Considering AI, many seem convinced that this rally is truly different.

However, it often takes little for a lot to go wrong, and go wrong very quickly. Black Swan events can ruin the market’s mood and form a broader downtrend. DeepSeek caused significant panic early this year, and something like this can happen again. More recently, OpenAI’s CEO, Sam Altman, agreed with the sentiment that the market was in an AI bubble. Wall Street’s latest darling, Palantir (NASDAQ:PLTR), is down ~17% from its peak since then.

This scare could fade away just like the DeepSeek one, but savvy investors should maintain at least some exposure to defensive stocks that do well in a recession. No stock is inherently “recession-proof,” but you’ll fare much better if you hold them through one.

Here are three such defensive dividend stocks:

Waste Management (WM)

Waste Management (NYSE:WM) does precisely what its name says: it manages waste. It is an essential service that everyone requires and cannot “cheap out on” in the traditional sense. Recession or not, waste must be handled, and residents are legally mandated to dispose of it properly. The most cost-effective way is through a company like Waste Management.

It will always have demand, no matter the economic environment. Waste Management will also retain its pricing power and profits, so the dividends will remain. It isn’t overly boring either. WM stock has delivered 114.2% in total returns over the past five years. This is better than the S&P 500’s 5-year total return of 99.45% and the Nasdaq-100’s 5-year total return of 103.2%.

The company does more than pick up waste and dump it in a landfill. It is involved in recycling and sells a lot of the recycled waste. In the U.S., the Waste Management business is expected to grow at a 5.2% CAGR from 2024 to 2030. I’d call that fairly fast, given most retail sectors are growing at a 2-3% CAGR and are far less recession-resistant.

WM has a 1.47% forward dividend yield and has increased its dividends for 22 consecutive years.

American States Water (AWR)

American States Water (NYSE:AWR) is a regulated water and electric utility services company mainly operating in California. Regulated utility companies typically maintain their rates during recessions because their rates are approved by regulators based on costs and allowed returns. However, if customers do not pay their bills, utilities experience uncollectible accounts. In California, the state provides support through programs that help cover customer arrearages.

It is unlikely that AWR will underperform against the broader market in a recession. The company should come out of the storm more or less unscathed.

AWR stock traded mostly sideways through 2008 and only declined 9.91% for the year. Other stocks had a third or more of their value shaved off during the same timeframe, so that decline is rather satisfactory.

The stock has a 2.7% dividend yield that it has raised consecutively for the past 72 years.

Ross Stores (ROST)

Ross Stores (NASDAQ:ROST) is more discretionary, but recessions don’t hurt it as much. The company’s “dress for less” slogan brings in more buyers when budgets are tight. ROST stock has delivered outstanding returns in 2008, up 17.64%. It delivered 45.28% in gains in 2009, 49.88% in 2010, and 52.01% in 2011.

The short-term swings have been more pronounced in recent years, but if you plan to buy and hold, ROST should serve you well through thick and thin.

The company expects a full-year tariff impact of $72-$82 million. This is unlikely to evolve into a threat to the business, as other apparel companies face the same problem. Ross Stores is more equipped to handle the tariff storm, as its net margin of 9.6% is better than that of over 87% of companies in the retail industry. Ross Stores posted $2.09 billion in net income last year, so the tariff hit stays minute.

ROST stock has a modest 1.09% dividend yield, payouts have been increased for the past six consecutive years.

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