With the Canadian market down more than 9% for the year, some investors are wondering which names they can turn to for a bit of protection against further weakness.
Here are the reasons why I think Fortis Inc. (TSX:FTS) and BCE Inc. (TSX:BCE)(NYSE:BCE) are solid picks in the current environment.
Fortis
Fortis own electricity generation and natural gas distribution assets located in the U.S., Canada, and the Caribbean. With total assets topping $28 billion, the company serves more than three million customers.
Fortis is a great defensive pick because people have to turn on the lights, cook their food, and heat or cool their homes regardless of the economic conditions. The company also benefits from a near monopoly in the local areas where it provides its services.
Adjusted net earnings for Q3 2015 just came in at $145 million, or $0.52 per share, up from $0.21 per share in Q3 2014.
The big jump is attributed to contributions coming from last year’s $4 billion acquisition of Arizona-based UNS Energy and the recent completion of the company’s expansion of its hydroelectric facility in British Columbia.
Fortis gets nearly all of its revenue from regulated assets, which means cash flow and earnings are reasonably predictable.
Management just bumped the quarterly dividend up by 10% to $0.375 per share. The new distribution yields about 4%. Fortis has raised the payout every year for more than four decades.
BCE
BCE holds a dominant position in an industry with few serious competitors, and that situation is unlikely to change.
The company continues to invest in its state-of-the-art wireless and wireline network infrastructure, and a push to run fibre lines right to the homes of its clients is helping BCE win new customers.
BCE delivered solid Q3 2015 earnings of $739 million, up 23.2% compared with the same period last year.
The company added 78,000 net new mobile subscribers in the quarter, 68,000 new IPTV customers, and an additional 58,000 Internet clients.
Once in a while, the market gets nervous that a new major competitor could come into Canada and threaten the gravy train enjoyed by BCE and its peers.
That’s wishful thinking on the part of the government and consumers because the potential returns simply don’t justify the costs to build a national network from scratch. The country is too big and there aren’t enough people.
BCE pays a quarterly dividend of $0.65 per share that yields 4.5%. In an economic slowdown, the last expenses people are likely to cut are their phone and Internet subscriptions. The TV service probably follows as a close third.
