Weaker-than-expected global economic growth is creating jitters among investors and turbulence in global markets. This is causing commodity prices including coal, metals, gold, and crude to plunge, pushing the S&P TSX Composite Index lower with it down 7% over the last month. With this trend expected to continue, many analysts claim a sustained market correction is due.
The best way for investors to protect themselves from this looming correction is to invest in high-quality, blue-chip companies with wide economic moats and that consistently pay a steadily increasing dividend. Let’s take a closer look at three companies that offer all these characteristics and the potential to shield investors from sustained losses due to a correction over the long term.
The Bank of Nova Scotia
Canada’s third-largest bank by assets, The Bank of Nova Scotia (TSX: BNS)(NYSE: BNS), continues to pay a steadily rising dividend with a tasty yield of 3.8% and a sustainable payout ratio of 45%. Impressively, the bank’s dividend has a five-year compound annual growth rate of 5%, which is well in excess of the average annual inflation rate and the returns offered by alternate defensive assets such as cash and government bonds.
Furthermore, like each of the Big 6 banks, it possesses a wide economic moat because of the high barriers of entry associated with the banking industry, including significant capital requirements and regulation. This in turn protects its competitive advantage.
When this is coupled with its solid exposure to the fast-growing economies of Chile, Colombia, Mexico, and Peru, it endows The Bank of Nova Scotia with solid growth long-term prospects. This will allow it unlock value for investors and reward them with further dividend hikes.
Canada’s largest transportation and midstream services provider to the energy patch, Enbridge Inc. (TSX: ENB) (NYSE: ENB) has not missed a dividend payment since 1953. But more impressively it has hiked its dividend for the last 19 consecutive years, giving it a juicy yet sustainable yield of 2.7%.
The company is also well on its way to winning the pipeline wars. The industries steep barriers to entry, significant industry regulation, and weighty capital investments are protecting its competitive edge. Meanwhile, continual investment in boosting its pipeline capacity as well as seeking out new refining markets other than the U.S. virtually guarantee it will retain its dominant market position. This will endow it with the ability to continue to grow earnings over the long term, leading to more dividend hikes.
Electricity utilities are among some of the best defensive stocks for adverse times, and Fortis Inc. (TSX: FTS) is no exception to this rule. It has raised its dividend every year since 1972 and now yields a generous 3.6% coupled with a sustainable payout ratio of 84%.
But the good news doesn’t stop there, Fortis possesses an almost unassailable economic moat, which coupled with the inelastic demand of electricity, virtually guarantees its future earnings growth. This will allow the company to continue to hike its dividend in order to reward loyal investors.
Each company offers investors solid steadily growing dividend streams coupled with healthy growth prospects, which should continue even with growing global macroeconomic volatility. This makes them a must-have addition to any share portfolio in order to reduce volatility and boost dividend stability.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Matt Smith has no position in any stocks mentioned.