The market volatility in equity markets is bound to increase, as Canada grapples with rising COVID-19 cases. The pandemic is affecting businesses and companies on a scale that has never been seen before. The second round of lockdowns and restrictions seems imminent. In such a scenario, there is every chance that the stock prices of companies will crash again.
It is prudent to look at companies that will be able to bear the brunt of the second wave of cases. These companies need to have strong fundamentals and regular cash flows. When the proverbial tide goes out, they should still have their costumes on.
A Dividend Aristocrat to the rescue
Fortis (TSX: FTS)(NYSE: FTS) is one of the best defensive stocks to own during these uncertain times. The company is one of the largest utility players in North America in the electricity and gas space. It operates across Canada, nine U.S. states, and five Caribbean countries.
The company’s new five-year plan says its base rate is projected to increase from $30.2 billion in 2020 to $36.4 billion in 2023 and $40.3 billion in 2025 (three- and five-year CAGRs of 6.5% and 6%, respectively). Barry Perry, president and CEO, Fortis said, “The new five-year plan supports our investment-grade credit ratings and dividend growth, providing stability for our shareholders.”
Fortis sports a forward dividend yield of 3.7% and expects to increase dividends at an annual rate of 6% through 2025. The company is aggressively attacking its carbon emissions and plans to reduce it by 75% by 2035 keeping 2019 as its base year. Fortis is adding approximately 2,400 MW of wind and solar power systems and 1,400 MW of energy storage systems, as it makes a concentrated effort to go green.
Fortis has raised dividends every year for almost 50 years. It has adequate cash flows to sustain a dividend payout, and its stock price will not be hurt too much by market volatility.
Another utility giant with a tasty dividend yield
Emera (TSX: EMA) is a utility provider in North America with 2.5 million customers spread across the U.S., Canada, and the Caribbean. Despite the pandemic, analysts expect Emera to post an impressive $6.08 billion in revenue for the year. This is a dip of just 0.5% from its 2019 revenues of $6.11 billion.
The company has a strong history of growth and has delivered a return of 9.1% to its shareholders in the last 20 years. Emera has grown its dividend at a CAGR of 6% since 2000. In a year where several companies cut dividends, Emera increased it. Today, the forward yield for the company is 4.55% and the company forecasts an increase of between 4-5% through 2022.
Emera is investing $850 million to install 600 MW of solar by 2021 in Florida (around 550 MW is in service today). The company will invest a further $850 million to install an additional 600 MW of power in the state.
Emera is one of those companies that is termed safe even in a pandemic. It provides an essential service that people can’t do without, and its cash flows will be able to sustain dividend payouts easily.
