For the stock market, it was one of the nastiest winters in recent memory with the algorithm-driven Christmas Eve crash that ruined the holidays for many beginner investors who got drawn in by the siren song that was the January 2018 market melt-up.
Fast-forward to today and the markets are bouncing back sharply. The Fed is getting off the backs of investors by doving down his rate hike outlook for the rest of the year. Although the Fed has cleared the runway for a potentially impressive 2019 rally, investors would be wise to exhibit caution, as we’re right an economic slowdown that may actually be a recession-in-the-works in retrospect should the U.S.-China trade spat not come to a peaceful resolution.
Of course, the odds of such a resolution are increased as we head into election year, but for now, many pundits are pinning the odds at less than 50%. In any case, we appear to be at a crossroads, as the markets could melt up or down depending on the outcome of a contingent event.
Thus, it’d only be prudent to invest in all-weather stocks that will fair well, regardless of which path the markets up end up taking. That means not playing one side of the coin toss by being overweight in cyclical stocks and owning shares of cheap dividend-paying stocks that’ll be less affected by a potential nosediving in Canadian GDP.
Consider Fortis (TSX:FTS)(NYSE:FTS) and Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ), two robust dividend-growth kings with sizeable yields that’ll hold their own, even if the global economic slowdown were to propel Canada into another recession. Both stocks are pretty cheap, and given each firm’s stable cash flows, both are able to support dividend hikes on an annual basis.
Fortis isn’t a name that makes headlines in the financial media very often, and there’s a good reason for this. Due to the highly predictable nature of the company’s regulated utility businesses, there’s little to no room for surprises to the upside or the downside. Depending on what you’re looking for, this lack of surprise trait may be seen as a positive or negative. In an era of tremendous uncertainty and market volatility, however, a lack of surprises, I believe, deserves a premium.
You’re getting 5% in dividend hikes per year thanks to the company’s above-average growth profile. Not much more, not much less, and it really doesn’t matter what ends up happening to the global economy. For most investors, this near-4% yield and the guarantee of 5% in raises per year is not just good, it’s outstanding, and puts bonds to absolute shame.
So, if you’re comfortable with losing 20-30% of your invested principal in a worst case scenario and have the discipline to hang on for the quick rebound, there’s no reason why you should favour fixed-income securities over Fortis.
As we head into what could be a volatile rest of the year, Fortis is a top stock that I know will have my back.
Canadian Natural Resources
At the time of writing, Canadian Natural stock sports a fat 3.8% dividend yield. Back in December, I urged investors to jump into the stock as the yield swelled to the highest level it had ever been at around 4%.
While a 3.8% yield is nothing to write home about for your average dividend stock, it is remarkable when you consider the upside potential that Canadian Natural stock is capable of should Western Canadian Select (WCS) prices revert toward mean levels.
Canadian Natural has a ton of landlocked value, and until the Canadian energy environment gets some sort of relief, Canadian Natural will be seen as a mediocre, albeit stable dividend growth stock.
The Albertan oil patch is subject to wild swings, but management has committed to protecting its shareholders from those swings with its generous payout and a lower degree of volatility made possible by the firm’s cash-flow-generative operations.
Indeed, the 3.8% yield is a huge incentive for investors to stick around through these rough times. And should WCS suddenly recover, investors will be rewarded for their patience with potentially massive capital gains.
Stay hungry. Stay Foolish.
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Fool contributor Joey Frenette owns shares of FORTIS INC. CN is a recommendation of Stock Advisor Canada.