The TSX Composite Index has tumbled 16% since the April dip; and if it falls more than 40%, it will be a market crash. When times are tough, investors’ risk appetite reduces. Their priority shifts from growing investments to preserving them. If your portfolio losses make you apprehensive, do not panic and sell your good stocks. Take a long-term view of the company and ask where you see your stock 10 years from now.
Two of the safest stocks to buy
In the meantime, invest in some of the safest dividend stocks to reduce your portfolio losses during a downturn. I have picked two dividend stocks that can keep some cash flowing no matter how bad the situation gets. They have survived the pandemic. A recession is a piece of pie.
Choice Properties REIT
The market downturn significantly affected Canadian REITs . Choice Properties REIT’s (TSX: CHP.UN) stock price fell 21.5%, underperforming the TSX Composite. But this dip is because the rising interest rates have caused a correction in the fair market value of properties, which ballooned during the pandemic. Choice Properties has a 97.6% occupancy ratio, with a recession-proof company, Loblaw, as its largest tenant contributing 57.5% of gross rental income.
The REIT pays 82% of its distributable cash flow to shareholders as distributions, leaving sufficient cash to repay debt and fund new developments. This has helped the REIT pay stable monthly distributions since 2017, without any cuts even in the pandemic. You can use the stock price dip to lock in a 5.96% yield for a long time. The REIT can withstand a recession as Loblaw stores are unlikely to shut down. When the economy recovers, your portfolio could surge 20%, giving you the best of both income and dividend growth.
Canadian Utilities
A company becomes stronger after facing a tough business environment. And Canadian Utilities (TSX: CU) has proved its resilience by growing dividends for the past 50 years. Over the half-century, the economy has faced the 1970s stagflation and 2007 Financial crisis. During these crises, energy prices were high, just like they are today, and contributed to Canadian Utilities’ profits. But the company also showed resilience in the 2015 oil crisis and 2020 pandemic when energy prices plunged. Its profits were hit during 2015 and 2020 but bounced back the next year.
Continued cash flow from the utility business kept the dividends growing. Canadian Utilities is involved in the generation, transmission, and distribution of electricity and natural gas to residents, businesses, and industries in Canada, Latin America, and Australia. The company is also investing in electric vehicle (EV) charging infrastructure, adding another income stream.
Canadian Utilities has long-term supply contracts for its energy output, and sells power and gas at regulated prices. CU shares are sensitive to energy prices as its revenues flow from customers paying their electricity bills. The company grows its profits by reducing the cost of distribution. Moreover, its debt maturity is spread over 20 years, with no single-year debt maturity crossing $125 million till 2030. Meanwhile, the utility has sufficient cash flow to service its debt, fund future projects, and pay and grow dividends.
Canadian Utilities increased its dividend at a compounded annual growth rate (CAGR) of 5% in the last 10 years. If you owned 500 shares of Canadian Utilities in 2011 ($13,000), your current stock value would be $18,190, with the annual dividend rising to $879.60 from $402 in 2011. Now is a good time to buy the stock after a fall of 12% in September, increasing its dividend yield to 4.88%.
How to invest safely with stocks
The current market is not impacting Canadian Utilities and Choice Properties REIT’s fundamentals, like cash flows and net income. It is these fundamentals that make the two stocks safer. The nature of their business protects them from losses. Moreover, they are more likely to rebound as the business environment improves.
