Canada’s primary equities benchmark displayed grit once more in the first week of November 2021. The TSX advanced almost 2% (418.7 points) week on week to close at a new high of 21,455.80 on November 5, 2021.
However, it’s nearly impossible to predict how the stock market will behave for the rest of the year. Will it pull back or end the year with a bang? Rising inflation and supply chain bottlenecks threaten the TSX’s stability, and, therefore, the probability of a rise or fall is 50/50.
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Historical returns
The TSX’s worst performance was in 2008, or the year of the global financial crisis. The index lost 4,845.36 points overall to end the year with a negative return of 35.03%. However, it rebounded the following year to close out 2009 with a 30.69% gain. The next-best finish was 1999, when the TSX gained 29.72%.
On March 12, 2020, the TSX experienced its most significant single-day drop (-12.3%) in 40 years. Again, the index proved resilient after a setback, eking out a 2.17% gain for the year. As of November 5, 2021, the gain is 23.1%. We can only second guess whether the TSX will eclipse the gains in 1999 and 2009 or not.
Top investment prospects
If a year-end market pullback worries you, the best strategy to calm you is to invest in the usual dependable stocks. You can’t go wrong with industry giants like Royal Bank of Canada (TSX: RY)(NYSE: RY) and Enbridge (TSX: ENB)(NYSE: ENB).
Canada’s largest bank and North America’s top energy infrastructure company have endured the worst recessions and economic downturns. A dividend cut was never a consideration, despite the headwinds and financial meltdowns. The blue-chip companies kept investors whole on their dividend payouts every year without fail.
Dividend hike coming
The Office of the Superintendent of Financial Institutions (OSFI) announced that federally regulated institutions can resume share buybacks and dividend increases. RBC and the other big banks have enormous excess capital after Q2 fiscal 2021. The banking regulator, however, expects them to act responsibly regarding dividend payouts.
Market analysts believe the lifting of restrictions on dividend increases will help bank stocks. With its $9.9 billion excess CET1 capital above the 11% standard industry floor, RBC has no impediment to raising its dividends. Based on Bloomberg Intelligence’s assessment, the average potential dividend increase is 17%.
RBC trades at $132.07 per share and pays a 3.27% dividend. Note the payout ratio is only 40.72%, or below the pre-pandemic level of 45%.
Growing dividends
Enbridge offers a growing dividend to would-be investors. You don’t need to wait for dividend hikes, because payouts have increased annually in the last 26 years. The energy infrastructure company boasts a low-risk business model similar to regulated utility firms.
The $109.14 billion pipeline giant plays a vital role in North America. Its pipeline network transports 25% of the region’s crude oil requirements. The three other franchises engage in gas transmission and distribution plus contracted renewal energy power.
Enbridge currently pays a 6.2% dividend. At $53.88 per share, the year-to-date gain is 39.49%. Moreover, the total return in the last 45.87 years is 51,309.46% (14.58% CAGR).
Best month and banner year
November could be the TSX’s best month, and 2021 could be a banner year. However, it would still be best for investors to own the top blue-chip assets for peace of mind.
