Market corrections will occur from time to time. The greater the correction, the rarer it is. Market crashes that happen in a flash are most likely triggered by some macro event that isn’t a company-specific problem. Nonetheless, these events do affect company profits at least in the near term. Investors should consider owning businesses and stocks that have staying power and that they are willing and confident enough to buy more of in market crashes.
Here are a couple of dividend stocks I own and will buy more of if the stock market crashes.
TELUS stock
Big Canadian telecom stocks tend to have lower volatility to the market. TELUS (TSX: T)(NYSE: TU) stock appears to have a higher growth profile over the next few years versus its Canadian telecom peers. For instance, TELUS spun off TELUS International last year, but it still holds a large stake in the IT services outsourcing and consulting business. TELUS International helped TELUS double its revenue from 2019, which is a significant outperform versus its peers that, at best, saw 6% growth.
Because it generates stable business results through economic cycles, investors can sit on the resilient shares and enjoy safe and growing dividend income. Its recent payout ratio is about 61% of its earnings. At its recent quotation, the telecom stock provides a nice yield of 4.7%.
According to the analyst consensus 12-month price target, the dividend stock’s valuation is discounted by about 16% at $28.77 per share. It’s a good time to pick up some shares, but if it falls lower on a market-wide selloff, it would be an even stronger buy.
Another great source of safe and growing dividend income is a big Canadian bank stock.
BMO stock
It’s a no-brainer for investors to buy the Big Six Canadian bank stocks on market corrections. Keep in mind that they are somewhat sensitive to economic cycles. In recessions, their earnings would fall. However, it’s critical to point out that they remained profitable during the last two recessions and continued paying safe dividends. In other words, the regulated big banks have staying power and enjoy an oligopoly environment, as they hold most of the country’s banking deposits.
Notably, in prolonged recessions, federally regulated Bank of Montreal (TSX: BMO)(NYSE: BMO) and its peers may be restricted from share repurchases and raising dividends. In the last recession triggered by the COVID-19 pandemic, BMO’s adjusted earnings per share dropped by 18%, and it kept its dividend the same for eight consecutive quarters due to regulations, but it managed to maintain dividend growth on an annual basis because of the timing of the dividend hikes before and after the dividend freeze.
Regardless, the big Canadian bank stocks, including BMO stock, have delivered stable long-term returns thanks partly to paying decent yields from their dividends. In market crashes, BMO stock’s price drops and its dividend yield rises. So, it makes good sense for long-term investors to buy more BMO shares when prices fall lower.
According to the analyst consensus 12-month price target, the dividend stock’s valuation is discounted by about 15% at $126.76 per share. It also provides a decent yield of 4.4%.
