Where to Invest As TSX Stocks Linger Around All-Time Highs

While TSX stocks look well placed for further upside, rising inflation poses a serious threat to overvalued assets.

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TSX stocks at large have been making new highs for the last few months. While stocks look well placed for further upside, rising inflation poses a serious threat to overvalued assets. Here are three defensive Canadian names that offer decent dividends and growth potential for the long term.

Intact Financial

Intact Financial (TSX:IFC), the country’s property and casualty insurance leader, has emerged strongly from the pandemic. The stock has returned almost 70% since the crash last year. Interestingly, although the stock is trading close to its all-time highs, its discounted valuation indicates more room to run.

Intact Financial is a $21 billion company with over 17% share in Canada’s property and casualty insurance market. It has been consistent on the revenues and earnings front for years — a rare feat given the volatile nature of the insurance industry.

The company pays consistently growing dividends and yields 2% at the moment. While the yield is not significantly higher, it has raised shareholder payouts every year since 2005.

Intact Financial’s stable dividends, discounted valuation, and dominant market share could unlock significant shareholder value in the next few years.

Enbridge

Top mid-stream energy stock Enbridge (TSX:ENB)(NYSE:ENB) yields 7.2% at writing. The superior yield suggests a huge spread against broader markets’ average and treasury yields. Even if central banks raise interest rates in the short term, Enbridge’s yield will remain one of the brightest spots among broader equities.

Enbridge offers a comparatively better risk-reward proposition to investors relative to other energy companies. Unlike oil and gas producers, Enbridge operates energy pipelines that connect oil producers and refiners. It operates on long-term fixed-fee contracts, which facilitates earnings visibility. ENB stock has returned almost 32% in the last six months, including dividends.

That’s why ENB has managed to increase its dividends for the last 26 straight years. Notably, it intends to raise dividends by around 6% per year for the next few years.

Regularly growing dividends and decent capital gain prospects render ENB stock an attractive bet for conservative investors.

Fortis

Top utility stock Fortis (TSX:FTS)(NYSE:FTS) is another safe bet for income-seeking investors. It pays a stable dividend yield of 3.6%, in line with TSX stocks at large. NotaFortis has increased dividends for the last 47 consecutive years, which indicates stability and reliability.

Stocks like Fortis might underperform in the short term. But they are classic defensive stocks because of their stable dividends and slow stock movements. Also, they have a low correlation with broader markets, which makes them attractive in volatile times. Fortis stock has notably beat the TSX Composite Index in the last decades, including dividends.

Fortis aims to increase its dividends by around 5% per year for the next few years. Its low-risk operations and stable earnings will likely continue to drive the shareholder payouts.

Bottom line

These three TSX stocks offer a safer investment proposition to investors. Even if markets turn weak in the short term amid the uneven economic recovery, these three will likely remain relatively strong.

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 Vineet Kulkarni has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends FORTIS INC and INTACT FINANCIAL CORPORATION.

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