It’s been a wild ride for investors in the stock market this year so far.
The S&P/TSX Composite Index increased gradually throughout 2019 to end the year with a 20% gain. We’ve since witnessed a 30% drop in just over a month, from mid-February to the end of March.
The COVID-19 outbreak continues to spread and weaken global economies. As unemployment rates continue to rise dramatically, some countries are beginning to hand out emergency benefit cheques.
The economic impact of the virus may be felt for months to come. Some investors are expecting that we will be faced with our first recession since the financial crisis just over a decade ago
Just because we may be headed for a recession doesn’t mean investors should shy away from the stock market. Investing philosophies may differ knowing a recession may be near, but there are plenty of opportunities after a 30%+ market crash.
When looking to buy ahead of a potential recession, an investor should look for certain characteristics. A strong market position, high growth potential, and a reliable dividend are three characteristics of a company that is worth adding to a portfolio ahead of a recession.
Market leader
Canadian telecom giant Telus (TSX:T)(NYSE:TU) is in a recession-proof industry that likely won’t see its bottom line impacted significantly during a market downturn. Consumers looking to cut costs after a market crash likely won’t be starting with their phone plans.
At a market cap of $20 billion, Telus sits behind both Rogers and BCE in size. Although the company is the smallest of the three, the barriers to entry and capital required to enter the telecom industry should cement the company in the top three for many years to come.
Growth potential
All three of the major Canadian telecoms stand to benefit greatly from the development of 5G technology. The increase in speed and capabilities for Telus will likely lead to profit increases from both retail and business customers.
In the spring of 2019, Telus announced it would be entering the health care industry with a health platform app. Considering the pandemic spreading across the globe, it looks like the move was well-timed.
The app, named Babylon, is a virtual platform that allows you to learn about symptoms, connect with health care professionals, and access health records all from your smartphone.
Dividend yield
Telus provides investors with a dividend that is both high yielding and reliable.
No dividend is ever guaranteed, which is especially important to know ahead of a recession. But Telus boasts a streak of increasing its dividend for 16 consecutive years.
The dividend pays investors $0.85 per share, split into four quarterly payments over the year. At today’s stock price, the dividend yield is a very respectable 5.3%.
Foolish bottom line
There likely will be more turbulent times ahead even after seeing the market crash as it has in the past month. As a result, there are some great companies on sale today that long-term investors should consider adding.
If you are going to pull the trigger and add a new company to your portfolio, keep in mind its market position and what the growth potential is. If you are buying it primarily for its dividend, make sure you look into the historical track record to see if you can count on it during a recession.
