The Australian economy has enjoyed a stellar run of economic growth over the past 25 years but there will come a time when the economy eventually hits a rough patch.
I'm not suggesting that this is going to happen anytime soon, although I still think it is important for investors to be aware of the types of companies that have the ability to perform strongly even if the economy slows down.
These types of shares typically have strong cash-flows, the ability to maintain their dividends and outperform during a falling market.
Three shares that I believe meet this criteria include:
Sonic Healthcare Limited (ASX: SHL)
Sonic Healthcare is one of the largest pathology and diagnostic imaging companies in the world with operations spanning across multiple continents. Fortunately, the demand for its services is unlikely to fall during a recession as most people will still visit a healthcare professional to get help if they are sick. Furthermore, the company's geographic diversification means investors are not overly exposed to one particular economy at any given time. Sonic has an impressive track record when it comes to dividends and this is backed up by very strong operating cashflows.
Ramsay Health Care Limited (ASX: RHC)
Another company with an extraordinary track record is Australia's largest private hospital operator. Like Sonic, the demand for hospital services is unlikely to be greatly impacted by an economic downturn as patients will not be able to choose when they fall ill or delay important treatments. Governments are also likely to remain very supportive of the sector in an effort to reduce the burden on the tax-payer funded public hospital sector. As highlighted here, there is a lot to like about Ramsay Health Care, although its shares do look fully valued at current prices.
InvoCare Limited (ASX: IVC)
InvoCare may possibly be the most recession-proof company on the ASX thanks to its market leading funerals and cemetery businesses. Australia's changing and ageing demographic trends are certainly a huge tailwind for the company as the death rate is only expected to increase over the coming years. Although investors should not expect to see explosive earnings growth from InvoCare anytime soon, it is sure to be a consistent performer in any economic climate. The shares are currently offering a decent dividend yield of 3.1%.
Investors considering defensive shares might also want to look at companies like Bapcor Ltd (ASX: BAP), APA Group (ASX: APA), Transurban Group (ASX: TCL) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).
