Passive Income & Wealth Protection Amid Uncertainty

In a global economy teetering on the edge of recession, driven by escalating trade tensions, aggressive tariff policies, and widespread uncertainty, safeguarding and growing personal wealth has never been more critical. According to the UN Trade and Development (UNCTAD) Trade and Development Foresights 2025, global growth is expected to slow to 2.3% next year.

The report cites rising tariffs and trade disruptions as major factors undermining economic predictability, warning that “trade policy uncertainty is at a historical high.” This uncertainty is already causing delayed investment decisions and reduced hiring across sectors.

Defining a Recession

The International Monetary Fund (IMF) notes that while there is no universally agreed-upon definition of a recession, it is typically understood as a period of declining economic activity. Though short downturns don’t qualify, a commonly used rule of thumb is two consecutive quarters of falling real GDP - though this measure has its limitations.

Because the U.S. is the world’s largest economy, most global recessions tend to coincide with U.S. downturns. Advanced economies have experienced recessions in the mid-1970s, early 1980s, 1990s, and 2000s, with those originating in the U.S. often having the most far-reaching global impact.

JP Morgan has warned that “aggressive tariff policy could push the U.S. - and possibly the global economy - into recession this year.” Although a recent breakthrough between the U.S. and China has temporarily eased tensions, slashing some tariffs for a 90-day period, tariffs remain historically high, and uncertainty persists. Trade flows and business confidence, severely damaged over the past several months, will not recover overnight.

The dramatic drop in tariffs is certainly a welcome development and has already triggered a surge in investor optimism on Wall Street. It raises hopes that a full-blown tariff-driven downturn might be averted. However, economists caution that it’s too early to declare the U.S. economy out of danger. While the odds of a recession may have eased slightly, significant risks remain.

In this environment, investors could be pushed to rethink traditional strategies and adopt more resilient, income-focused approaches.

The Power of Dividends in Uncertain Times

Dividend-paying stocks and related instruments could offer a compelling way to navigate economic downturns while continuing to build wealth. As Barron’s puts it: “Equity markets decline during recessions because earnings are declining and economic output is declining. But dividend stocks provide a level of income and total return, even as stock prices come under pressure.” A senior equity strategist at Goldman Sachs supports this view, citing the pandemic-induced recession: “Even in the sharpest and deepest recession in modern history, S&P 500 dividends only fell by 3%.”

For investors seeking potential stability, dividend-growth stocks are often favoured over high-yield stocks during downturns. Analysts argue that “well-capitalized companies that raise dividends during recessions are the ones to own when things look ugly.” Another observes that dividend growth stocks tend to perform better in volatile environments, explaining that “the characteristics of high-yield companies can be much more volatile than the characteristics of dividend growers.”

KFC’s parent company, Yum Brands, stands out as one of the few firms that managed to continue increasing its dividend even during the previous recession - a testament to its financial resilience and commitment to shareholder returns.

 
An article from The Motley Fool highlights companies like ExxonMobil and Coca-Cola, which have increased dividends through the last four recessions, demonstrating strong resilience and a likely ability to weather future downturns.

Beyond income, dividends often signal corporate strength. A company’s ability and commitment to maintain dividend payouts - even in turbulent times - reflects management’s confidence in future cash flows and offers investors reassurance amid market uncertainty.

Structured Products: An Additional Layer of Protection

While dividend-paying instruments, including stocks, REITs, and ETFs, may play a vital role in generating income and preserving capital, they are not the only tools available to build financial resilience. Structured products from institutions like Investec could offer an additional layer of protection and opportunity, particularly when market volatility threatens traditional portfolios. Notably, Investec is set to list a new structured product that investors can access via EasyEquities, with the offer closing on 23 May 2025.

The Investec Rand Euro Stoxx Select Dividend Autocall offers a potential return of 17.00%* p.a. in Rand if the Euro Stoxx Select 30 Dividend Index is flat or positive on an annual call date, with a maximum five-year term.

According to Allianz Global Investors, “Dividends in Europe are forecast to increase by 4% in 2025, with European dividend yield also on an upward trend.” They add: “Following uninterrupted growth in dividend payments in Europe since the coronavirus pandemic, dividend increases are continuing. And this trend is intensifying- the annual increase in dividend payments is also expected to rise.”

Capital in the structured product is protected unless the index falls more than 30% at maturity.

Conclusion 

By combining market-linked performance with built-in downside protection, structured products could serve as buffers against market turbulence, helping investors stay the course when conditions turn unpredictable. 

However, in a rapidly shifting economic environment, investors may want to pay close attention to changes in corporate dividend policies. Adjustments in dividend payouts often reflect broader shifts in a company’s financial health or strategic priorities and may serve as early indicators of resilience or risk. 

As UNCTAD emphasizes, “coordinated action will be essential to restore confidence and keep development on track.” For investors, this could mean diversifying intelligently and aligning portfolios with strategies that balance capital preservation and performance amid ongoing global uncertainties.