A bear market seems always just around the corner these days, with high uncertainty buffeting the markets on a daily basis. From the threat of war in the Middle East to the coronavirus scare, it takes a particularly bullish investor to stay positive and carry on buying and holding stocks.
But what should the long-range income investor buy for a downturn, and which stocks are worth holding if and when a recession finally hits? The short answer is that strictly risk-averse investors should be building a portfolio of dividend-growth market leaders. They should also be making full use of the savings plans available to them.
For instance, every Canadian investor should make use of their Tax-Free Savings Account (TFSA). It’s a great way to start investing if you’ve never bought stocks before. It’s also a key addition to a set of retirement funds, and can help to supplement a Registered Retirement Savings Plan (RRSP). Knowing which stocks to buy is key to successful TFSA investing, though, so let’s review one of the very best.
A strong play for safe income
If you’re looking for a value play in the Canadian utilities space, super defensive stock Fortis (TSX:FTS)(NYSE:FTS) is a top choice. Trading with a P/E ratio of 16 times earnings, it’s way below the national electric utilities average of 24.7. Fortis is also a highly dependable stock, with a 46-year payment record providing reassurance for cautious investors looking to stave off recessionary concerns.
With revenue looking set to grow by just over 7% per year and a solid 12-month track record behind it, which saw earnings growth of 61%, Fortis is a strong performer that often heads up lists of relatively safe TSX stocks to buy and hold for the long term. Its moderately high dividend of 3.48% makes it a go-to for careful investors looking to strengthen an income portfolio.
It’s been a tough start to the year already, with a near-miss in the Persian Gulf, a potential pandemic, Brexit, and a U.S. election swirling together to form a cloud of uncertainty. It’s this culture of doubt that’s got asset managers calling for caution. And as low-risk investments go, they don’t get more reassuring than utilities.
Investors can pair a key utilities purchase with a solid pick like CN Rail. The rail operator is strongly diversified, and with a dividend yield of 1.75% fed by an integral relationship with just about every aspect of the Canadian economy, it’s a must-have stock with defensively wide-moat properties. A true Dividend Aristocrat, CN Rail is also a strong play for crude by rail.
The bottom line
Looking for key stocks to buy and hold? Both Fortis and CN Rail are as safe as they come. These are the kinds of assets that an investor could pack in a savings account and come back to in years to come to find that they’ve accumulated substantial returns. Both stocks are tailor made for a TFSA or RRSP, strongly resilient to an economic downturn, and suited to both the retiree and new investor alike.
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 Victoria Hetherington has no position in any of the stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway.