TFSA Income Investors: 2 Defensive Dividend Stocks to Own During a Market Downturn

Telus (TSX:T) (NYSE:TU) and a top Canadian utility stock deserve to be on your radar right now. Here’s why.

| More on:
Mature financial advisor showing report to young couple for their investment

Image source: Getty Images

Canadian retirees and other income investors rely on steady streams of dividends from the stocks they own inside their self-directed TFSA portfolios.

The equity markets have enjoyed a bull run that’s starting to look a bit long in the tooth, especially when compared to historical data. The good times could certainly continue for months or even years, but it makes sense to start thinking about adding some defensive stocks to the fund.

The World Bank and the IMF both issued reports recently that suggest global growth is slowing. The longer the trade war goes on between China and the United States, the higher the risk that the rest of the planet will slide in to recession.

With stocks trading at lofty valuations, the next correction could be significant.

What should investors do?

The TSX Index has a number of stocks that tend hold up well when the broader market takes a hit.

Here are two that might be interesting picks right now for an income-focused TFSA.

Fortis

Fortis (TSX:FTS)(NYSE:FTS) is a North American utility with $50 billion in assets located in Canada, the United States, and the Caribbean.

The stock has grown significantly from its origins as a small power provider in Eastern Canada to become one of the top 15 companies in the industry.

Fortis has taken advantage of acquisition opportunities to expand its reach, including two major deals in the United States in the past five years. The purchases balanced out the revenue base, and a majority of the income now comes from the American businesses, providing TFSA investors with a great way to get access to the U.S. through a Canadian company.

Homes and businesses need electricity and natural gas to power the lights and keep the building warm regardless of the state of the economy. Nearly all of the revenue is generated by regulated businesses, which means the cash flow used to pay dividends should be predictable and reliable.

Fortis also grows through investment in organic projects. The company is spending $18.3 billion over the next five years on initiatives that should boost the rate base enough to support average annual dividend hikes of 6%. Fortis has increased the payout for 46 straight years, so the guidance should be solid.

The current payout provides a yield of 3.4%.

Telus

Telus (TSX:T) (NYSE:TU) is one of Canada’s top communication companies with world-class wireless and wireline network infrastructure providing mobile, internet, and TV services across the country.

Telus continues to add new customers at a steady rate and does a good job of keeping them after they subscribe. In fact, Telus regularly reports the lowest post-paid mobile churn rate in the industry.

Telus just announced plans to acquire security firm ADT Canada for about $700 million. The deal adds 500,000 new security clients and gives Telus another suite of products to bundle with its existing offerings.

Homeowners and businesses are taking advantage of new technology to automate, monitor, and protect their properties and telecom service providers are a key part of the equation.

Telus intends to raise its dividend by 8-10% per year over the medium term and has a long history of dividend growth. The existing distribution offers a 4.7% yield.

Global economic chaos should have a limited impact on the business. Internet and mobile services are essential and broadband demand continues to increase every year.

The bottom line

Fortis and Telus are strong businesses that should continue to do well through an economic downturn. Both stocks pay attractive dividends that continue to grow and deserve to be on your radar as defensive picks for an income portfolio.

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 Andrew Walker has no position in any stock mentioned.

More on Dividend Stocks

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 »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »