It’s all but confirmed that interest rates will increase in 2022. In fact, the Fed will soon be finalizing its plans to deal with the interest rate hike in March. Depending on how much it plans on increasing rates, the market could continue to sell off in the short term. Fortunately, there are ways that investors can modify their portfolios in anticipation of rough waters ahead. Dividend stocks have long been known to be safe havens during market downturns. As a result, investors would be wise to add more shares of dividend companies.
Here are three dividend stocks that could provide stability to your portfolio.
Interest hikes are good for banks
It’s clear that interest rate hikes have been negatively received by growth stocks and the broader market. However, that’s not the case for all sectors. In fact, the financial sector is poised for growth in a future higher interest rate environment. This is because banks often see wider profit margins when interest rates are increased. Because of this, investors should consider buying shares of Bank of Nova Scotia (TSX: BNS)(NYSE: BNS). With more than 2,000 branches and offices across 50 countries, it is Canada’s most international bank.
Bank of Nova Scotia is known as a Dividend Aristocrat. The company has managed to increase its dividend distribution for over a decade. At its latest earnings report, Bank of Nova Scotia announced that it would be raising its dividend by nearly 11%. In addition to a long history of raising dividends, Bank of Nova Scotia’s forward yield should be very attractive. At 4.45%, investors will get a nice bang for their buck by investing in this company.
Choose this Canadian behemoth
When looking at dividend stocks to add to your portfolio, look for companies that are clear leaders in their industry. This will be beneficial, as companies that have a solid moat over their competitors should also have very secure dividends. Take Canadian National Railway (TSX: CNR)(NYSE: CNI) for example. It is the larger entity of the Canadian railway duopoly. Canadian National operates a rail network which spans more than 33,000 km. It is also one of the largest railway companies in North America based on revenue.
Canadian National holds a 25-year dividend-growth streak. That makes it one of 11 TSX-listed stocks that would qualify as Dividend Aristocrats in the United States. In addition to a great dividend-growth streak, Canadian National maintains a relatively low payout ratio. At 36.5%, the company has a lot of room to continue growing its dividend in the future.
Invest in recession-proof companies
Finally, investors should consider buying shares of recession-proof companies. These are companies that don’t see major declines in demand during times of economic uncertainty due to the nature of their business. For example, Fortis (TSX: FTS)(NYSE: FTS) should remain a strong company in the short term, as demand in regulated gas and electric utilities shouldn’t decline.
Fortis claims a 47-year dividend-growth streak. That gives it the second-longest dividend-growth streak in Canada. In addition, its forward dividend yield is very attractive (3.63%). Investors may note that Fortis’s payout ratio is quite high at nearly 77%. However, the company’s long history of increasing dividends suggests that its management team is very capable of allocating capital intelligently over the long term. This is a stock that belongs in any dividend portfolio.
