2 Ultra-High-Yield Stocks That Thrive When the Market Gets Rough

Colgate-Palmolive and American States Water are presented as defensive stocks that have outperformed the S&P 500 this year, returning 9.3% and 5.5% respectively. Colgate generated $3.6 billion of free cash flow versus $1.8 billion in dividends and raised its quarterly payout 1.9% to $0.53, while American States Water lifted dividends 8.3% to $0.504 and yields 2.7%. The article argues both companies should hold up relatively well in a market sell-off, especially if the economy weakens and interest rates begin to fall.

Analysis

This reads as a classic late-cycle quality bid: investors are rotating toward cash-generative, low-beta balance sheets as macro uncertainty rises, not because growth is collapsing today but because the market is discounting a higher probability of weaker discretionary demand and eventually easier policy. The defensive factor is doing two jobs simultaneously here: it cushions downside if earnings revisions broaden lower, and it becomes a duration trade if rates roll over, which is why utilities can outperform even when the macro tape is merely “less good,” not outright bad.

The second-order effect is that the relative appeal of staples and utilities can crowd capital away from higher-multiple defensives and lower-quality cyclicals at the margin. If consumer stress deepens, the pressure does not stop at discretionary retail; it can seep into input demand, promo intensity, and trade-down behavior across packaged goods, which usually benefits scale leaders with pricing power but hurts subscale brands and private-label incumbents. For AWR specifically, the upside is more rate-sensitive than headline yield suggests: falling front-end yields can expand multiple faster than earnings, while the downside is that a re-acceleration in inflation would be a double hit via higher discount rates and potentially stickier operating costs.

The consensus may be underestimating how much of this move is a “fear trade” versus a pure fundamental re-rating. These names are attractive, but at this point the risk/reward is less about absolute upside and more about whether the market’s recession hedge gets crowded enough that forward returns compress. The better tell over the next 1-3 months is not earnings alone, but whether short-dated bond yields and defensive factor leadership confirm a broader growth scare; if they don’t, the relative outperformance can fade quickly.

NVDA and INTC are only relevant here as a contrast: if the market’s concern is macro fragility, semis can remain vulnerable to multiple compression even if AI capex stays intact. That creates a cleaner expression via long defensives versus short rate-sensitive high-duration equity exposure, rather than outright bearish index bets.

Key Decisions for Investors

• Go long CL on a 3-6 month horizon as a defensive carry trade; upside is modest, but downside should be materially lower than the market if consumer spending weakens. Use it as a ballast position rather than a return driver.
• Initiate a long AWR position if 2-year Treasury yields continue to drift lower over the next 4-8 weeks; this is a convex rate-cut beneficiary with earnings stability plus multiple expansion potential.
• Pair trade: long CL / short a discretionary consumer basket for the next 1-2 quarters. The thesis is trade-down and promotion intensity pressure hitting weaker brands first, while CL’s pricing and distribution scale preserve margins.
• Prefer AWR over long-duration growth proxies until the market confirms a growth re-acceleration. If yields back up, cut the position quickly — utility valuation sensitivity can erase several quarters of dividend carry.
• Avoid chasing the move in both names after the recent outperformance; enter on pullbacks or on confirmation of softer macro data, since the current setup is more about hedging than finding alpha in absolute fundamentals.