Recessions are scary. It makes it even more so that this one is triggered by a contagious virus that affects the whole world. Further, no one knows how long the pandemic is going to affect the economy, our lives, and our livelihoods.
Canada’s unemployment rate was higher than 12% last month. If you count the people who wanted to work but gave up looking and those who are working less than they want, that rate quickly jumps to over 25%!
Many stores were closed during lockdowns, but many have since reopened with a lower operating capacity, as social distancing and other precautionary measures are in place. This means they’re going to earn lower sales and profits (if they’re able to go above breakeven).
Thankfully, certain companies are resilient in this recession. Investors can forget the recession and win by investing in these TSX stocks.
Fiscal policies have triggered unprecedented levels of money printing. In contrast, gold production is fixed. That’s one reason why gold prices have been on the rise. It’s now at levels that are close to last time’s high set in 2011.
Because of the money printing, gold bulls believe there are still lots of room to run for gold prices and therefore gold stocks. In fact, some believe that gold prices will go for US$3,000 per ounce in this bull run. That’s a runway of more than 60% from current levels.
It can be difficult to invest in gold after the run up. Since 2019, gold prices have appreciated about 43%. In comparison, Franco-Nevada (TSX:FNV)(NYSE:FNV) stock has greatly outperformed gold by more than doubling, appreciating 132%, because its profits are leveraged to gold prices.
I’d recommended Franco-Nevada stock in late August 2018 when the market ignored gold and the stock was trading at very low levels compared to now. Since then, the gold stock has appreciated 140%. Although it’s no longer on sale, gold prices are still trending higher. So, Franco-Nevada stock can still do well for investors who buy it on meaningful dips.
Franco-Nevada has increased its dividend every year since 2009 with a five-year dividend-growth rate of nearly 5%. Right now, it offers a yield of about 0.6% as a bonus.
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Gold stocks don’t pay much of a yield, while more income will help investors tremendously in any recession. Investors can look to utility stocks to receive nice dividend income, as many utilities earn recession-resilient earnings.
People need electricity in good and bad economic times. Capital Power (TSX:CPX) is aiming for a low-carbon, cleaner future. It generates power from multiple sources, including wind, waste heat, solid fuel, natural gas, landfill gas, coal, and solar.
Approximately 83% of its adjusted EBITDA is contracted, including 29% of EBITDA from Alberta, 26% from other parts of Canada, and 28% from the U.S.
Capital Power has a dividend-growth streak of six consecutive years with a five-year dividend-growth rate of about 7%.
The utility currently yields 6.9%. Additionally, it intends to increase its dividend by about 7% next year and 5% in 2022.
What’s more to like is that the dividend stock appears to be discounted. Analysts have an average 12-month price target of $33.50 per share, which represents near-term upside potential of 20%.
The Foolish takeaway
If you’re looking for sure returns during this recession, consider gold stocks and utility stocks.
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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 CAPITAL POWER CORPORATION.