Better Buy: Fortis Stock or Hydro One

Fortis (TSX:FTS) or Hydro One (TSX:H) are safe dividend stocks for Canadians to buy ahead of a downturn.

| More on:
The sun sets behind a power source

Source: Getty Images

With just a month and a half left in the year, it seems like many are ready to dismiss 2022 as one of their worst years in markets ever. Indeed, many market newcomers were drawn in by the great bull market that roared out of the gate in the first half of 2020. The so-called Roaring 20s seem to have never materialized. Now, all that people can talk about is a recession. With inflation continuing to stay hot, the call for more interest rate hikes is loud and clear. Higher rates have knocked unprofitable growth stocks off the podium. Now, even profitable growth companies are being punished severely by a Mr. Market who’s becoming very hostile.

With pundits pointing to a recession in 2023, there are serious questions as to when it’ll be safe to get back in stocks again. These days, blue chips are taking massive hits to the chin for missing on revenue or earnings. Downgraded guidance seems to be met with extreme double-digit percentage downside moves that aren’t typically for large-cap stocks that are known for their relative stability in difficult economic environments.

Brave a market selloff, but do so cautiously

Indeed, braving a market selloff is always wise. But you’ve got to be careful as to how you buy the dip to minimize damage from a vicious bear who may or may not hibernate this year. Indeed, it’s easy to postpone all buying. However, doing so could leave you missing out on today’s slate of cheap deals. If you wouldn’t pass up a Black Friday door crasher, you shouldn’t pass up the bargains to be had on the TSX Index right now.

You don’t need to jump into the deep end with stocks that are off more than 50-60% year to date. Instead, you can and probably should play it safe with Fortis (TSX:FTS) or Hydro One (TSX:H). These two dividend stocks won’t implode like a paper bag if it turns out there’s more punishment to be had before the bear goes away.

Fortis

Fortis is a bond proxy that’s seen its dividend yield swell above the 4% mark amid its latest bear market plunge. Indeed, Fortis stock isn’t known to be so volatile, given its economically insensitive operating cash flow stream that tends to fuel dividend growth and stock price stability over time. Still, the bear has been unforgiving this year. With the rise in bond yields, Fortis has been a tad less competitive when it posted a 3-3.5% yield that it usually commands.

These days, the yield is on par with a 10-year Treasury note. Though Fortis stock is still “riskier” than bonds, I’d argue that current prices make Fortis a better deal than bonds for those with long-term horizons. In my books, Fortis is a worthy bond proxy for those looking to do better.

Hydro One

Hydro One has faced a lot of choppiness but to a lesser extent than Fortis. The stock is currently off just shy of 8%. Like Fortis, Hydro One has a wide moat protecting its cash flows, allowing it to raise dividends and continue to deliver in tough times. Hydro One is a sleep-easy stock. The 3.34% dividend yield is bountiful but less rich versus its rivals.

Regardless, Hydro One is a superb bond proxy for the long run. Shares are also reasonably priced at 19.6 times trailing price-to-earnings. As one of the least eventful (and most boring) plays on the TSX, Hydro One is a stellar recession pick for jittery investors looking to dip a toe into the water (rather than jump into the deep end) amid the market rout.

Better buy? FTS or H stock

I like Fortis more than Hydro One, mostly due to the higher yield. The valuations are pretty much in line. Though Hydro One may be viewed as more stable, Fortis has a more promising long-term growth rate, thanks to its U.S. exposure.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has positions in FORTIS INC. The Motley Fool recommends FORTIS INC and HEXO Corp. The Motley Fool has a disclosure policy.

More on Investing

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »