Scared of Market Volatility in 2021? Stash Your Cash in This 1 Safe Stock

The stock market usually recovers after a crash. However, if you fear a severe correction, invest your cash in a defensive asset like Fortis stock for capital protection and sustained dividend payments.

| More on:
edit Safety First illustration

Image source: Getty Images

A market crash is a sudden drop of a stock market index in a trading day or a few days. However, investors fear a severe correction because of possible losses when investment values drop. Historically, bull markets in the past have experienced several corrections. At times, frightened sellers caused the crash.

Dividend stocks, in particular, are income sources of retail investors with long-term financial goals. During a bear or declining market, share prices could fall and dividend cuts loom. You should move your cash to safer assets for capital protection and sustained dividend payments in such a case.

In the Toronto Stock Exchange (TSX), Fortis (TSX:FTS)(NYSE:FTS) stands out as a defensive asset. The utility stock is not 100% risk-free but has qualities that can withstand a market crash. Last year’s performance is proof of the company’s resiliency during a catastrophic event.

Temptation to sell

The TSX’s most significant single-day decline since 1940 happened in the COVID year. On March 12, 2020, Canada’s primary stock market index fell 12.34% to 12,508.50. Fortis shares fell 10.74% to $45.54 on the same day. During a crash, scared investors tend to sell. Often, the results are losses, because they sell at depressed prices. Thus, instead of selling, re-balance your portfolio.

The stock market usually pares down the losses following a crash. In the March crash, Fortis jumped 10.58% to $50.36 to quickly recover the loss after a day. There have been ups and downs since, although the price swings were not wild as you would expect.

By year-end 2020, the share price was $51.39, and the total return for the year was flat (+0.04%), which indicates that Fortis held its ground. Investors didn’t lose money on the stock as the capital remained intact. Meanwhile, the company continued paying dividends. As of February 15, 2021, the share price is $51.50.

Regulatory mechanisms

The $24 billion well-diversified, regulated electric and gas utility company reported a 7.71% increase in adjusted earnings for the full-year 2020 versus the previous year. Fortis’s $4.2 billion record capital expenditures yielded an 8.2% increase in annual rate base growth.

According to David Hutchens, its president and CEO, last year was a successful year on many fronts, despite COVID-19’s challenges. Because Fortis’s utilities have regulatory mechanisms, cash flows were stable, and earnings continued delivering reliable service.

The regulatory mechanisms protect about 83% of the company’s revenues. Fortis’s revenue increased in 2020 due to higher residential sales as a result of the work-from-home trend. As to the emissions, management has established a new corporate-wide reduction target of 75% by 2035. With its five-year capital plan in place, expect the rate base to increase from $30.5 billion in 2020 to $40.3 billion by 2025.

Dividend-growth target

Fortis expects that long-term growth in rate base will support earnings and dividend growth. With its five-year capital plan in place, expect the rate base to increase from $30.5 billion in 2020 to $40.3 billion by 2025.

The utility stock currently pays a 3.92% dividend. Management targets an average annual dividend growth of approximately 6% through 2025. While sustainability across its utilities is the central focus, future growth depends on operations, performance, business prospects, and opportunities.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends FORTIS INC.

More on Dividend Stocks

stock analysis
Dividend Stocks

Buy These TSX Dividend Shares Next Week

Are you looking for dividend stocks to add to your portfolio? Buy these picks next week!

Read more »

edit Safety First illustration
Dividend Stocks

3 of the Safest Dividend Stocks in Canada

These three dividend stocks are all high-quality companies with defensive operations, making them some of the safest investments in Canada.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

3 Stocks to Anchor Your Portfolio in a Rocky Market

Three stocks are solid anchors in any portfolio today for their outperformance in a weak market and defiance of the…

Read more »

money cash dividends
Dividend Stocks

3 Solid Dividend Stocks That Cost Less Than $30

Given their solid financials and healthy cash flows, the following under-$30 dividend stocks are a good buy in this volatile…

Read more »

grow money, wealth build
Dividend Stocks

2 High-Yield Dividend Stocks With Rock-Solid Payout Ratios

These two dividend stocks offer unbelievably high yields of more than 7% and earn more than enough free cash flow…

Read more »

Dividend Stocks

5 Steps to Making $500 in Monthly Passive Income in 2023

Generating monthly passive income isn't as hard as it sounds. Here are 5 steps to start making $500 every month.

Read more »

sad concerned deep in thought
Dividend Stocks

Worried About a Recession? Invest in This Stable Dividend Stock to Rest Easy

Stable dividend stocks bought primarily for their payouts can offer you surety of returns, even during a recession.

Read more »

A golden egg in a nest
Dividend Stocks

How to Turn $50,000 Savings Into a Generous Nest Egg in 2 Decades

Build a generous nest egg in 20 years by investing your accumulated savings in Dividend Aristocrats and holding them in…

Read more »