With a bull market that is now well over 10 years old, and with a global economy that is facing slower growth ahead, many investors are wondering how they should be positioned. Bond yields offer 2% or less on most Treasury securities, and that pesky U.S. and China trade war is keeping growth lower while there are very few areas of the economy still growing as fast as in prior years. Investors use many strategies, and those who need or want to keep equity exposure often seek refuge in the solid dividend-paying defensive stocks that won’t fall apart in the next stock market pullback or if a recession finally hits.

Defensive stocks like utilities, consumer products and telecom are currently viewed as some of the go-to hotspots for investors in this category. These stocks generally are perceived to still offer long-term upside appreciation, dividend yields that compete with or exceed long-term Treasury yields, and shares that are unlikely to crater. All this is possible due to the low volatility of their underlying businesses. It’s the so-called Steady Eddie investment theme.

Many of the top defensive stocks have performed incredibly well during the bull market, and many of these stocks actually rally on days when the broader market indexes fall 1%, 2% or more. The problem heading into late 2019 and 2020 is that many of these Steady Eddie defensive stocks are now trading at serious premiums to the market that cannot be ignored. Yardeni Research has shown that the S&P 500 Index is now valued at 16.3 times its forward 12-month earnings per share projections, and many of these defensive stocks that used to be valued under the S&P’s multiple are now valued at 22, 25 and even over 30 times forward earnings.

The defensive stocks are supposed to offer a refuge, but if the investing community ever decides to make a big exodus or lock in long-term gains and call it a day, then there might be worse losses than investors would expect. With the media endlessly and prematurely calling for a recession, it could be a bad time even for defensive stocks if the economy goes from slowing to contracting sooner than expected.

24/7 Wall St. has used the midpoint of the forward earnings per share consensus estimate from Refinitiv for 2019 and 2020 for a blended forward earnings estimate. That is the “times earnings,” or a forward price-to-earnings (P/E) ratio in this case. We have evaluated dividend yields, market caps and trading history on each company, and we have offered additional color on what makes each of these defensive stock valuations so much higher than in the past.

We have referred to data in the past five years as a reference, but in some cases we have gone back almost 10 years to the “stocks to own for the decade” to illustrate just how much of a premium defensive stock investors are having to pay versus back then. Here are 15 defensive stocks that most investors would agree will see their businesses hold up relatively well, even if a recession lands sooner than expected, but these are also trading at nosebleed valuations that could bring pain investors may not have factored in.

American Electric Power
> Times Earnings: 21.5
> Dividend Yield: 3.0%
> Market Cap: $44.8 billion

American Electric Power Co. Inc. (NYSE: AEP) has been a stock to own for the decade for years now. Yet, at a time when interest rates have remained low, its stock has soared, its dividend has gone lower despite multiple dividend hikes and investors are paying nearly twice as much on a P/E ratio as they did before the demand for utility stocks went through the roof. AEP is a great utility looking to keep lowering its coal exposure, and investors keep paying up for it.

American Tower
> Times Earnings: 56.0
> Dividend Yield: 1.5%
> Market Cap: $100.4 billion

American Tower Corp. (NYSE: AMT) had been a great growth stock, but it has converted to a real estate investment trust (REIT) for tax purposes. The company has no real exposure to China, and its business should hold up in the years ahead whether or not regulators allow wireless carrier consolidation. That said, it is valued exponentially higher than the top carriers are, and its dividend is a fraction of their payouts.

American Water Works
> Times Earnings: 33.0
> Dividend Yield: 1.6%
> Market Cap: $22.3 billion

American Water Works Co. Inc. (NYSE: AWK) is by far the best and largest water utility in America. It is diversified in many states and has millions of water utility customers, and investors seem to buy up its stock any day the market sells off. It remains a stock for the decade, but investors are now forced to pay more than twice the earnings multiple than in the past, and its dividend yield is half of what it used to be despite multiple dividend hikes.

Clorox
> Times Earnings: 24.0
> Dividend Yield: 2.6%
> Market Cap: $19.9 billion

Clorox Co. (NYSE: CLX) makes household and consumer products with much more than just bleach and cleaning brands that every consumer uses or has used. The field is tight with competition here, and at a time when earnings compress, companies seeking to divest or make changes to their portfolio might also come with higher in-store promotional activities, when the company may face online sales competition and private label competition. Clorox is currently at the top of its P/E range of 215 to 25 over the past seven years.

Coca-Cola
> Times Earnings: 24.5
> Dividend Yield: 3.0%
> Market Cap: $228.5 billion

Coca-Cola Co. (NYSE: KO) was considered dead money from 2012 through 2018, but it has migrated away from sugar-water into many more beverages in water and sports drinks and has taken on better growth partnership opportunities. Coca-Cola has staged a technical breakout above $50, and the analyst community has been raising price targets. That comes with a serious premium to the market for a low-growth company. Coca-Cola used to trade closer to 10 times earnings after the recession, but it’s a serious premium now that the company isn’t under as much fire.

Colgate-Palmolive
> Times Earnings: 25.0
> Dividend Yield: 2.4%
> Market Cap: $62.4 billion

Colgate-Palmolive Co. (NYSE: CL) has many consumer brands and products beyond its namesake toothpaste and soap offerings. The consumer products segment remains highly defensive during weaker times in the markets, but it is highly competitive with promotional expenses and more private label and online sales. The multiple of 25 times expected earnings is not the highest it has ever been, but it’s a 40% premium versus some prior years, and it actually has the lowest dividend yield compared with its top three consumer products peers.

Crown Castle
> Times Earnings: 71.0
> Dividend Yield: 3.1%
> Market Cap: $60.5 billion

Crown Castle International Corp. (NYSE: CCI) is in the same boat as American Tower as it converted to a REIT status and it has a highly protected market and no serious trade issues. Yet, its earnings multiple and its higher dividend are harder to understand in basic investor screens. Much of the premium here may be that its shares have outperformed its rival, but it’s still a serious premium for anything tied to telecom and wireless.

Domino’s
> Times Earnings: 23.0
> Dividend Yield: 1.1%
> Market Cap: $9.5 billion

Domino’s Pizza Inc. (NYSE: DPZ) may not sound extremely high on a P/E ratio basis today, but its stock has lost one-fourth of its value from the peak. It’s also a high-value stock in a food delivery business, where the options of who delivers, what food types can be delivered and how they are delivered seem to be getting very crowded. It also has a network of over 16,000 stores and is said to be in 85 nations and territories, and it already has expanded its menu alternatives and has converted to almost an entirely franchise model at this stage. If Domino’s can’t sustain its earnings growth ahead, it’s going to have to share more of its income via dividends to keep shareholders hungry for more.

Keurig Dr. Pepper
> Times Earnings: 21.5
> Dividend Yield: 2.2%
> Market Cap: $39.2 billion

Keurig Dr Pepper Inc. (NYSE: KDP) is new to the defensive screen, and it still has a high enough growth profile that some investors won’t shy away from it. Its shares also have not seen a mad scramble with big inflows. It is the culmination of Dr Pepper, Snapple and Keurig in coffee and tea technology. That said, its dividend is handily lower than rivals Coca-Cola and PepsiCo.
Kimberly-Clark
> Times Earnings: 20.0
> Dividend Yield: 2.9%
> Market Cap: $48.8 billion

Kimberly-Clark Corp. (NYSE: KMB) has performed well versus mid and late 2018, but its shares are barely higher than back in 2015 and 2016. While it has a high dividend, earnings growth is projected to be higher than revenue growth and that means price hike assumptions, along with better cost management and hopefully some share buybacks. The consumer products space remains highly competitive, and the big companies may be forced into margin-lowering in-store promotional costs while they fight private label sales and while online sales continue to be away from many stores.

McDonald’s
> Times Earnings: 26.0
> Dividend Yield: 2.1%
> Market Cap: $166.8 billion

McDonald’s Corp. (NYSE: MCD) is the king of fast food, and the company has migrated to virtually an all-franchise model in which it simply sells food, makes the rules and keeps making adjustments to its menu for the franchise owners to follow. The company has committed to a policy of buying back stock and raising dividends, but at all-time highs it must be asked if the company will keep shrinking its float at more expensive prices. Does McDonald’s feel like a stock that should have nearly doubled since October of 2016?

NextEra Energy
> Times Earnings: 25.0
> Dividend Yield: 2.3%
> Market Cap: $105.3 billion

NextEra Energy Inc. (NYSE: NEE) is the former FPL (Florida Power & Light) and is now the largest utility in the country by market capitalization by a large margin, after becoming the “first $100 billion utility.” NextEra’s share price has risen 135% in five years, and it has been aggressively raising its dividend, but that aggressive appreciation has kept its dividend yield lower than most solid utilities. It remains to be seen whether renewables and other efforts can help NextEra continue meeting or beating lofty earnings growth expectations that will keep supporting dividend hikes.

PepsiCo
> Times Earnings: 23.0
> Dividend Yield: 3.0%
> Market Cap: $185.2 billion

PepsiCo Inc. (NYSE: PEP) would be in the same boat that Coca-Cola has been in, with slow revenue growth in beverages, but it has historically had the snack food business helping it along. With a new CEO, it has run into earnings growth issues at a time when revenue growth has stalled. If that growth falters, investors may feel that close to a 70% payout ratio of adjusted earnings is already asking enough of the company.

Procter & Gamble
> Times Earnings: 24.0
> Dividend Yield: 2.5%
> Market Cap: $298.3 billion

Procter & Gamble Co. (NYSE: PG) is the king of the consumer products companies, worth more than twice as much as the other three consumer products companies mentioned in this report. Now that its shares finally have stopped being range-bound as they had been for years, the stock gain of 42% in the past 12 months and gain of almost 30% year to date has raised the bar on its P/E ratio while also lowering its dividend that new investors would expect. The portfolio here is massive, but the sector remains competitive, and every competitor seems to cherish just taking 1% market share away from the great P&G.

Walmart
> Times Earnings: 22.4
> Dividend Yield: 1.9%
> Market Cap: $322.4 billion

Walmart Inc. (NYSE: WMT) is the king of U.S. retail, and its expected revenue growth may be nearing $550 billion in the next two years. Earnings growth has been slower, and Walmart has been investing handily in customer pick-ups, customer shipping, technology, online viewings and e-commerce as it seeks to keep its dominance in a world where Amazon and other online or big-box sellers keep growing. Walmart used to trade with a market multiple closer to 15 to 17 times earnings, but that has risen as its shares finally broke out above the $95 to $100 levels to above $110.

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