It has been a wild ride in 2018. There hasn’t been this much volatility in the market for years, and price swings of +2% are not uncommon. For those who are risk averse, it can be unnerving. Unfortunately, it’s when emotions take over that investors make mistakes. Quad Group’s chief strategist Peter Borish said it best in a recent interview, “I feel like we’re rats on a sinking ship. They all run to one side thinking something good is going to happen and it doesn’t, and then the wind shifts and so we all run to the other side.”
The best way for investors to protect themselves is to invest in high-quality stocks with a large market capitalization and a growing dividend. If you’re worried about continued volatility into 2019, consider adding Toronto Dominion Bank (TSX: TD)(NYSE: TD), Power Financial (TSX:PWF), and Fortis (TSX: FTS)(NYSE: FTS) to your portfolio.
Low-beta stocks
Beta is an indicator that measures a stock’s volatility in comparison to the market. A beta below one signifies that the company is less volatile than the market and uncorrelated. A ratio above one is quite the opposite. It usually means the company moves in tandem with the market, but with greater price swings. Hence, it’s more volatile.
All three of the companies above have betas below one. This is not surprising, as they are all stocks in the upper echelon of their respective industries. Toronto-Dominion and its beta of 0.86 has been Canada’s best-performing bank for years. Fortis, with a beta of 0.6 has also been an overachiever in its industry. On the flip side, despite underperforming, Power Financial is one of the most respected names in the industry and has a beta of 0.75.
High-yield stocks
Thanks to the most recent market downtrend, all three have attractive yields. Power Financial leads the group with hefty 6.41% yield, almost double that of its yield from a couple of years ago. TD Bank is also offering investors a yield (3.74%) not seen in years. Finally, Fortis is yielding 3.67%. Although not as high as earlier this year, it is still above its historical averages.
Dividend-growth stocks
A high yield is nice, but when coupled with a growing dividend, it becomes even more attractive. Fortis and TD Bank are both Canadian Dividend Aristocrats — stocks that have a history of raising dividends for five or more consecutive years. Toronto-Dominion has a seven-year streak and the highest dividend-growth rate in the banking industry. Fortis owns Canada’s second-longest dividend-growth streak at 45 years. It expects to continue this streak, as it has a targeted 6% dividend annual growth rate through 2022.
Power Financial used to be one of the most reliable dividend-growth companies in Canada. Then the financial crisis hit and it suspended dividend growth for a number of years. Although it has taken it longer to return to growth than some of its peers and the banks, the company is on the verge of becoming an Aristocrat once again. Power Financial has a four-year dividend-growth streak with a 5% average annual growth rate.
