Market volatility has some investors worried about a recession. Fortunately, there’s no need to worry. In fact, market pullbacks are excellent times to shore up your portfolio with stocks that now trade at handsome discounts.
Here’s a look at three defensive options to consider.
Source: Getty Images
Worried about a recession? Utility stocks are great defensive stocks
One of the first stocks to consider also happens to be one of the most defensive stocks on the market. Fortis (TSX: FTS) is one of the largest utilities in North America. The company boasts 10 utility operations across Canada, the U.S., and the Caribbean.
So, what makes Fortis such a stellar pick for investors worried about a recession? That comes down to the utility business model itself. In short, Fortis provides a necessary service that is backed by long-term regulatory contracts that can span decades.
That stability means that Fortis has a reliable, recurring, and stable revenue stream. It also means that Fortis can both invest in growth and provide a generous dividend to investors.
In recent years, that growth has turned towards upgrading and transitioning its existing facilities towards renewables. Fortis has earmarked billions towards that multi-year capital program.
Turning to dividends, the current quarterly dividend pays out a yield of 4.45%. That juicy yield is not even the best part. Fortis has provided generous upticks to that dividend for a whopping 48 consecutive years. The company is also committed to 5-6% annual upticks for the next several years.
In terms of earnings, a $40,000 investment in Fortis will earn $1,780 in the first year. Between reinvesting that income until needed and considering those juicy annual bumps, Fortis can quickly become a defensive star for any portfolio.
Finally, let’s not forget that like most of the market, Fortis currently trades at a discounted level of just shy of $51 within $1 of its 52-week low.
Telecoms make great options, too
Telecoms are another defensive option to consider. The big telecoms boast a reliable revenue stream, steady growth, and juicy dividends. But which of the Big Three is better for investors worried about a recession? That would be BCE (TSX: BCE).
BCE’s massive infrastructure and deep pockets make it an ideal option for risk-averse investors. But that’s not to say BCE can’t offer anything else, because it’s a great defensive and diversified option to consider.
Investors are often dismissive of this, but BCE is a media behemoth. The company owns dozens of radio and TV holdings and has an interest in print media and even professional sports teams. This is important because it provides the company with multiple, diversified revenue streams outside of the core telecom services space.
That level of diversification helps BCE to maintain paying out its juicy quarterly dividend, which the company has done so for well over a century. The current yield works out to an incredible 6.38%, meaning that a $40,000 investment in BCE will earn $2,552 in the first year.
Like Fortis, BCE has made it a habit of providing a generous annual bump to that dividend.
Buy your groceries; get rich
Another defensive option to consider is Metro (TSX: MRU). Grocers provide a necessary service that most of us took for granted before the pandemic. And while grocers have felt the squeeze of inflation like the rest of us, the impact is unique on Metro.
Grocers are recession-proof businesses. Rising inflation and interest rates have meant that consumers must be smarter about choosing the right products to buy. This includes opting for more value-oriented offerings or buying items in bulk. Both are options for consumers thanks to Metro’s impressive portfolio of store banners.
Like BCE, Metro is well diversified with complementary businesses. In this case, Metro’s sprawling pharmacy network, which consists of over 650 locations, overlaps with Metro’s 950 grocery locations.
Turning to dividends, Metro offers a quarterly dividend that carries a yield of 1.63%. Metro has also provided a predictable annual uptick to that dividend for 27 consecutive years.
Final thoughts
No stock is without risk. Fortunately, the three stocks mentioned above are defensive gems that should offset those investors worried about a recession, while also earning a handsome income.
