Some economists say economic uncertainty may have peaked in the first half of 2022. However, they also agree that the central banks’ tightening monetary policies will continue to weigh heavily on stocks. The Bank of Canada will likely announce another rate hike, the fifth this year, on September 7, 2022.
The TSX displays erratic behaviour due to market headwinds, particularly soaring inflation and rising interest rates. Except for sectors including energy (+43.65%), consumer staples (+8.53%), utilities (+6.27%), and industrial (+2.64%), seven of 11 primary sectors are in negative territory.
If you want to stay invested in the stock market and not miss out on earning opportunities, choose stocks that can endure the storm. The National Bank of Canada (TSX:NA) and Fortis (TSX:FTS)(NYSE:FTS) are ideal choices for risk-averse investors. While both aren’t high-yield stocks, the dividend payouts should be rock-steady for years.
Big Six bank
With its market capitalization of $31.75 billion, National Bank is Canada’s sixth-largest bank. At $94.25 per share (-30% year-to-date), the dividend yield is 3.9%. This Big Six bank has a dividend growth streak of 12 consecutive years. In early December 2021, NA joined the dividend parade of the banking sector and raised the common share dividend by 23%.
On May 27, 2022, in conjunction with the release of Q2 fiscal 2022 earnings results, management announced a 6% dividend increase from Q1 fiscal 2021. The low dividend payout ratio of 32% tells you that the payouts are safe and sustainable. In the first half of the fiscal year (six months ended April 30, 2022), net income increased 17% year-over-year to $1.82 billion.
Laurent Ferreira, President and CEO of National Bank, said each business segment made significant contributions to the bank’s sustained growth. He adds, “We are maintaining our strategic objectives of delivering a high return on equity and ensuring prudent management of risk and regulatory capital.”
Management will present its earnings results for Q3 fiscal 2022 (quarter ended July 31, 2022) on August 24, 2022.
Growing dividends
Fortis is always center stage when market volatility is high because the top-tier utility stock is a defensive asset. The $28.87 billion electric and gas utility company serves customers in Canada (five provinces), the U.S. (nine states), and the Caribbean (three countries). Its utility assets are highly regulated which means cash flows are predictable.
More importantly, Fortis is the next dividend king on the TSX, and has raised its dividends for 48 straight years without fail. With its new five-year $30 billion capital plan (2022 to 2026), management expects the rate base to grow further. Solid support for earnings and dividend growth means Fortis’ plan to increase dividends annually by an average of 6% through 2025 is doable.
In Q2 2022, net earnings increased 31% to US$284 million versus Q2 2021. David Hutchens, President and CEO of Fortis was pleased with another strong quarter. He said, “The financial results reflect the underlying growth of the utilities.” If you invest today ($60.32 per share), the dividend yield is 3.55%.
Dividend safety over yield
Most of the time, income investors chase after high-yield stocks. However, when market conditions are uncertain, it’s better to prioritize dividend safety over yield.
