3 Dividend Champions to Hedge Against the Looming Trade War

A looming trade war between the U.S. and China, since Trump implemented his much-vaunted tariffs on Chinese imports, has made financial markets particularly jittery. The Dow Jones Industrial Average has tumbled sharply in recent weeks to be down by almost 3% over the last month, while the S&P/TSX Composite Index has dropped by 2%.

There are signs that markets will continue to gyrate wildly after Trump threatened to slap further tariffs on an additional US$50 billion of imports from China, and Beijing threatened to respond in kind. That makes it essential for investors to hedge against growing economic and geopolitical uncertainty by investing in stocks that pay a regular income, possess a wide economic moat, and have strong defensive characteristics.

Here are three stocks to weather-proof your portfolio against looming economic and geopolitical storms. 

Now what?

Fortis Inc. (TSX:FTS)(NYSE:FTS) is Canada’s second-largest electric utility with a diversified portfolio of assets operating across Canada, the U.S., and the Caribbean. It earns most of its revenue from regulated assets, which virtually guarantees Fortis’s earnings. That, along with steep barriers to entry and the inelastic demand for electricity, which is an important part of modern economic activity and our daily lives, makes Fortis particularly resistant to economic disruptions.

The consistency of Fortis’s earnings growth has allowed it to reward investors with regular dividend hikes for the last 44 years, which is one of the longest streaks of any Canadian stock. Fortis pays a sustainable, steadily growing dividend, which yields just under 4%.

Canadian National Railway (TSX:CNR)(NYSE:CNI) is Canada’s largest railway and the only one with transcontinental reach. Steep barriers to entry endow it with a wide economic moat, while rail remains the only economic means of bulk freight transportation for grain, metals, and coal. These characteristics protect its earnings during times of economic crisis and ensure that revenues will grow when the economy is expanding.

The company’s moves to reinvigorate growth coupled with rising demand for bulk freight transport will boost earnings over coming months.

You see, firmer metals, coal, and oil prices have caused miners and upstream oil producers to boost production. Canadian National has the lowest operating ratio of all class-one railroads, underscoring the profitability of its operations. The focus on growth combined and reducing costs will further boost profitability.

The strength of its operations has allowed Canadian National to increase its dividend for the last 22 years which now sees it paying a sustainable dividend yielding almost 2%. 

Enbridge Inc. (TSX:ENB)(NYSE:ENB) is a leading North American energy infrastructure company which has been roughly handled by the market in recent months to see it down by 19% for the year to date. It provides transportation, storage, and midstream services to oil and gas producers through its pipeline network, which reaches from Canada to the U.S. Gulf coast. The recent decline in its stock has created a buying opportunity in a major North American energy company, which is integral to the energy patch.

Most of Enbridge’s revenues come from contracted sources, meaning they are consistent and almost guaranteed. This has allowed it to reward investors with an impressive history of dividend hikes; it has increased its dividend every year for the last 22 years, giving it a juicy 6% yield.

The recent rally in crude, which sees West Texas Intermediate (WTI) trading at over US$60 per barrel, will act as a powerful tailwind for growth as upstream oil producers increase their output to take advantage of higher prices. The growing demand for oil and natural gas transportation, along with initiatives aimed at expanding its pipeline network, practically guarantees earnings growth.

So what?

Investors seeking to hedge against the uncertainty sweeping financial markets should bolster their exposure to all three stocks. Each possesses solid growth characteristics and consistent earnings, allowing them to take full advantage of firmer economic growth, along with robust defensive credentials that shield them from market downturns. They also reward investors with sustainable steadily growing dividends, further boosting their attractiveness for weathering market slumps.

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Fool contributor Matt Smith has no position in any stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway and Enbridge. Canadian National Railway and Enbridge are recommendations of Stock Advisor Canada.

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