Canada’s benchmark index, the S&P/TSX Composite index, is down 104.2 points since the start of July, marking the third straight month of losses for Canadian equity investors.
Perhaps making things worse, the S&P 500, the most closely watched equity market in the world, has also opened down for the month. Meanwhile, the NASDAQ 100, an index heavily weighted towards growth and technology stocks, is showing a second straight month of declines.
Rightly so, all of this is starting to make investors feel a little anxious, especially considering we are now into the eighth year of this bull market — a bull market that, for the most part, has been pretty uneventful so far.
With that in mind, many investors may be inclined to rebalance their portfolios with a more cautious approach, including a few low-volatility stocks better positioned to withstand any “market noise.”
These three companies are holdings within the S&P/TSX Composite Low Volatility Index (INDEXTSI:TXLV), an index designed to measure the performance of the 50 least-volatile stocks within the S&P/TSX Composite.
Bank of Nova Scotia (TSX:BNS)(NYSE:BNS)
Being one of the major Canadian banks, Bank of Nova Scotia is likely already a staple of many Canadians stock market holdings.
Among the Canadian banks, Bank of Nova Scotia has the most exposure to the Caribbean and Latin America. Should these regions experience any outsized volatility, Bank of Nova Scotia may not fare as well as others.
However, Bank of Nova Scotia’s dividend, currently trading at 3.82% with a conservative payout ratio of under 50%, should be expected to provide something of a floor on the share price.
Fortis Inc. (TSX:FTS)
As a government-regulated electric and gas utility holding company, Fortis is inherently less risky than a lot of the other companies that make up the TSX Composite, particularly those whose profits swing wildly with commodity prices.
Yet Fortis has demonstrated above-market growth in recent years owing to several large acquisitions that have nearly doubled the company’s profit base.
The drawback is that these acquisitions have forced the company to dramatically expand its debt obligations, which now total nearly $21 billion compared to shareholder’s equity of $14 billion.
Not to fret — investors shouldn’t be alarmed as the company is in fine position to service the debt with an interest coverage ratio safely above two times.
Fortis shares pay a 3.5% yield today, and the company’s payout ratio sits comfortably at 80% of net earnings.
Toronto-Dominion Bank (TSX:TD)(NYSE:TD)
TD Bank is the second Canadian bank to make this list of low-volatility stocks.
Following the 2008-09 Financial Crisis, then-CEO Ed Clark made a bold splash when he expanded TD Bank’s operations south along the U.S. seaboard. As a result, TD Bank has the most U.S. exposure among the major Canadian banks today.
TD Bank shares are down slightly for the year, which may be an attractive entry point for investors.
Analysts are calling for earnings growth of 10% this year compared to a forward P/E of 11.4 times, giving the company a very reasonable 1.1 PEG ratio.
Which one is right for you?
Bank of Nova Scotia and TD Bank will be the most exposed to any shifts in economic conditions given their direct connection with credit markets.
However, even during the Financial Crises, these two banks’ dividends were never in any real danger, and keep in mind that no one is forecasting a return to that scenario.
Fortis, meanwhile, is probably the safest of the three, barring any unexpected regulatory changes with respect to electricity markets.
All three pay dividend yields above 3% and have conservative payout ratios, making them safer options for you to park your money as the market settles itself, while also giving you a chance to collect a healthy payout while you wait.
Stay Foolish.
