Recession Watch: 3 Dividend Stocks to Hold Forever

A Canadian recession means that investors may want to hold on tight to stable dividend stocks like Hydro One Ltd. (TSX:H) and others in 2020 and beyond.

| More on:
Man holding magnifying glass over a document

Image source: Getty Images.

April is winding to a close, and many Canadians will have passed through the first full calendar month of lockdowns. Some U.S. states and several European nations are opting for a gradual re-opening, but Canadian officials are still preaching caution. The economic and financial toll of the shutdown is mounting. Many economists are projecting a sharp recession. Today, I want to look at three dividend stocks that are worth holding onto forever in the face of a downturn.

More bad numbers bring up spectre of recession

Jobless numbers in Canada and the United States shocked onlookers in recent weeks. Last week, an analysis by the Canadian Centre for Policy Alternatives (CCPA) bandied about more disturbing data. It used the number of Canadian Emergency Response Benefit (CERB) claims as a proxy for the unemployment rate. This suggested that the COVID-19 pandemic has effectively wiped out job gains made in the Canadian economy made since October 1986.

Data from Service Canada and the Canada Revenue Agency showed that more than seven million unique applicants have filed for the $2,000 monthly benefit since April 6. However, CERB benefits were expanded in mid-April to include the underemployed and those earning less than $1,000 in a four-week period.

The International Monetary Fund (IMF) expects the Canadian economy to shrink by 6.2% in 2020. Economic activity is expected to suffer declines of over 25% in the spring season. The recent market rally has shown that many investors are still optimistic. However, readers should still beware of risks in the market right now.

Defensive dividend stocks to own

Essential services have remained open in this time of crisis. That also makes these dividend stocks some of the best targets ahead of a probable recession. Utilities, grocery retailers, and telecom service providers are sources of stability right now. Moreover, many of these industries have even seen spikes in activity.

Hydro One (TSX:H) is a utility that boasts a monopoly in Canada’s most populous province — Ontario. Its shares have climbed 1.8% in 2020 as of close on April 24.

Shares of Hydro One last possessed a favourable price-to-earnings ratio (P/E) of 19 and a price-to-book (P/B) value of 1.6. Hydro One and other utility providers have opted to give customers some relief by dropping rates, but usage is sure to spike with so many Canadians hunkered down. Moreover, Ontario has experienced a colder-than-average April.

Hydro One last paid out a quarterly dividend of $0.2415 per share. This represents a 3.8% yield. The company has delivered dividend growth in every year since its IPO. Utilities have been some of the most reliable income vehicles since the 2007-2008 financial crisis.

More essential services

Empire Company is one of the top grocery retailers in Canada. It owns grocery brands like Sobeys, Farm Boy, and Freshco. Shares of Empire have climbed 10.6% in 2020 so far. Back in late March, I’d suggested that investors should target Empire and other stocks in the food space. This is a stock to trust in this crisis and in a recession.

Shares of Empire last had a favourable P/E ratio of 17 and a P/B value of 2.4. Empire last paid out a quarterly distribution of $0.12 per share, representing a modest 1.4% yield.

Telecoms have provided an essential service in this environment, especially with so many Canadians now forced to work from home. BCE is one of the largest telecoms in Canada. Its shares have climbed 11% over the past month. However, the stock has dropped marginally year over year.

Now is a great time to scoop up this top telecom at a discount price. Shares last had an attractive P/E ratio of 16. BCE offers a quarterly dividend of $0.8325 per share, which represents a strong 5.9% yield.

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 Ambrose O'Callaghan owns shares of HYDRO ONE LIMITED.

More on Dividend Stocks

Family relationship with bond and care
Dividend Stocks

TFSA Investors: 3 Cheap Canadian Stocks for Retirees

These three Canadian stocks are super cheap for retirees looking for a great buy that will last the test of…

Read more »

calculate and analyze stock
Dividend Stocks

CPP Disability Benefits: Here’s How Much You Could Get

Not everybody can get CPP disability benefits. If you want some passive income, consider investing in Royal Bank of Canada…

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Boosting Your Monthly Income: TSX Stocks That Deliver

Dividend investing can boost regular or active incomes, especially select TSX stocks that pay monthly dividends.

Read more »

Canadian Dollars
Dividend Stocks

How to Earn $2,005 in Passive Income With No Start-Up Costs

Passive income doesn't need to be difficult work. In fact, by definition, it shouldn't be! Here's an easy way to…

Read more »

Dividend Stocks

TFSA Passive Income: How to Earn $4,800 Per Year Without the CRA Taking a Cut

A good strategy to generate tax-free income while reducing portfolio risk.

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

Ready to Invest With $5,000? 3 Stocks for December 2023

These top stocks are some of the most obvious choices out there for a reason. Pick them up if you're…

Read more »

Dividend Stocks

Should You Buy TC Energy for Passive Income?

TC Energy offers an attractive yield and a growing dividend. Is TRP stock now oversold?

Read more »

A plant grows from coins.
Dividend Stocks

2 TSX Dividend Stocks With Lucrative Yields in December 2023

BCE is one of the lucrative TSX dividend stocks generating strong cash flows, thus resulting in a steadily rising dividend.

Read more »