2 Recession-Ready Stocks to Buy Right Now

Investors should fear not of a looming recession if they hold Enbridge Inc. (TSX:ENB)(NYSE:ENB) and Fairfax Financial Holdings Ltd. (TSX:FFH) in their portfolios.

| More on:
Close up of newspaper headline for financial crisis news

Image source: Getty Images.

Is your stock portfolio ready for a recession? If not, consider recession-ready stocks like Enbridge (TSX:ENB)(NYSE:ENB) and Fairfax Financial Holdings (TSX:FFH) right now!

Enbridge

Enbridge is a leading energy infrastructure company in North America. It’s a key component of the energy sector, as it moves about 25% of the crude oil and about 22% of the natural gas on the continent. It’s also the third-largest North American natural gas utility by consumer count.

Throughout the financial crisis of 2007/2008 (which triggered a recession) and the energy price collapse five years later, Enbridge’s adjusted EBITDA, a cash flow proxy, remained stable or growing. This is evidence that the business’s virtually regulated or contracted EBITDA is recession resilient.

As a result, Enbridge is a top Canadian dividend stock that has paid a reliably growing dividend for 23 consecutive years with a 10-year dividend growth rate of 15%.

What’s exciting for buyers today is that Enbridge offers a yield of 6.3%, which is the highest it has been in 20 years! Other than its dividend increases, its lower share price is another contributor to its enticing yield.

ENB Dividend Yield (TTM) Chart

ENB Dividend Yield (TTM) data by YCharts.

In the first half of the year, Enbridge’s payout ratio was less than 63% of its distributable cash flow, which aligns with the company’s target of less than 65%. Therefore, its dividend is safe. Next year, it intends to increase the dividend by 10%. This implies an unbelievable forward yield of 6.9% from a blue-chip dividend stock!

Fairfax Financial

While the stock market has been marching to new heights, Fairfax stock has been treading near its multi-year low. It’s also trading near a 10-year low price-to-book valuation, as shown in the chart below. Therefore, it’s an incredible opportunity to accumulate FFH shares right now.

FFH Price to Book Value Chart

FFH Price to Book Value data by YCharts.

The stock also offers pays a dividend once a year to help boost returns. It’s good for a yield of 2.1% currently.

In the first half of the year, Fairfax’s overall insurance operations were profitable. Its underlying insurance and reinsurance businesses operate on a decentralized basis, allowing Fairfax to solely focus its efforts on capital allocation.

Consequently, from 1985 to 2018, led by Prem Watsa, Fairfax compounded its book value per share compounded by 18.7% annually, which translated to the share price growing by almost 185 fold, equating to 17.1% per year!

At the end of the first half of the year, Fairfax had more than US$10 billion of cash and short-term investments in its investment portfolio. Additionally, Fairfax generates float from the premiums received because losses are paid often years later. In between the time premiums are received and losses are paid out, Fairfax invests the float with the goal of generating lucrative returns in the markets.

The low-cost float and large cash position give lots of liquidity for Fairfax to take advantage of any future downturns in the markets.

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 Kay Ng owns shares of Enbridge. The Motley Fool owns shares of Enbridge. Enbridge and Fairfax are recommendations of Stock Advisor Canada.

More on Dividend Stocks

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »