Is a market crash imminent? While it is impossible to know, it certainly seems like all the tea leaves are lining up in that direction. As impressive as American markets seem, it is practically only the tech stocks that have really accelerated upward. If the markets turn south, they will get crushed.
If you look at the growth rates on most hyped tech stocks, they don’t match the increase in their stock prices. Rather, government intervention, cheap money, and FOMO are the main drivers behind their stock prices at this point. Those factors are not long-term value-creation drivers. I don’t know how long government money can keep the markets afloat, but it might be a good idea to move some gains into defensive income.
Canadian stocks and you
One of the benefits for the average Canadian investor is the ironic fact that most main-stay Canadian stocks haven’t climbed as extremely as American stocks. In fact, unless you are exposed to major tech stocks, you are less susceptible to a downturn than investors who are chasing the latest trend.
Look at a dividend stock like Enbridge (TSX:ENB)(NYSE:ENB). This company has paid a high yield to investors for decades. It raised its dividend in late 2019 by 9.8%. This increase doesn’t seem great when you are currently doubling your money on tech stocks, I know. Over the long term, though, it will add stability and income to your portfolio. Use some of your capital gains from a double, and you can essentially buy the shares for free with your gains.
The yield currently sits at about 8% per year and is forecasted to rise by 5% annually until the mid-2020s. This income comes at a decent valuation with less volatility than you might get from your tech stocks. This is a long-term income story that you can buy for cheap today.
Enbridge’s dividend is supported by healthy fundamentals. It generates strong cash flow from its varied businesses. Like many tech stocks, its services were needed, even during the depths of the pandemic. Did you need heat on the cold days at the beginning of the lockdown? Enbridge supplied your power and gas. Did you want to cook a meal for yourself now that you are at home? This energy giant supplied the cooking fuel for your stove.
It supplied the energy for people in various parts of the globe as well. This $80 billion company serves Canada, the United States, and parts of Europe. It is an international superstar worth owning now.
The bottom line
If you managed to catch the stimulus wave, you did very well. Be cautious. I have begun to hear rumblings of students who are making money day-trading tech stocks in their parent’s basements. The last time I heard that was in the late ’90s.
However, it would be a good idea to sell a small amount in compensation just in case they start to fall hard. Get your money back if you have a double, or at the very least create a capital gains dividend for yourself by selling a few shares. Put that money into one of Canada’s great dividend stocks like Enbridge, which is selling at a cheap valuation.