Tax-Free Savings Account (TFSA) investors who haven’t spent their latest $6,500 contribution may have a chance to snag a few bargains, as market volatility returns, courtesy of some hot inflation numbers south of the border. Indeed, the TSX Index hasn’t been nearly as choppy. But I think a value-conscious dividend approach could be the way to go for most investors who don’t want to put themselves in the crosshairs of the next inevitable market pullback.
After a strong start to 2023, a pullback should only be expected. And investors should be ready to go with defensives that can help keep your TFSA retirement fund on steadier waters.
How to react to the return of market volatility
At the end of the day, investors should be ready to take action when the markets swing wildly on news that probably isn’t nearly as meaningful over the longer term.
While it’s always wise to have defensive exposure with your TFSA to be ready for the next dip, I think investors should be careful about how much they pay. Defensive stocks aren’t exactly safe if you don’t get in at a good price.
Currently, Hydro One (TSX:H) and Quebecor (TSX:QBR.B) stand out as intriguing defensives at attractive multiples.
Hydro One
When it comes to defensive exposure, it doesn’t get much better than Hydro One. The company has a virtual monopoly over Ontario’s transmission lines. With so much regulation protecting Hydro One’s cash flow stream, the firm has a dividend that’s about as solid as they come. Lots of regulation could weigh down the firm’s long-term growth prospects. Further, it’s no mystery that Hydro One is one of the steadiest Steady Eddies on the TSX. Amid market chaos, the name tends to trade at premium multiples.
Though Hydro One stock is by no means a steal today, I view it as a stock worth stashing in your TFSA if you lack quality defensives with reliable dividends. In my books, Hydro One stock is a great company at a fairly reasonable price. It’s not a great price, but it’s one that’s worth paying, given the hazy market in 2023.
The 3.12% dividend yield is about average, but the low 0.26 beta means shares can fare okay once markets really begin to turn south. After a 6% dip off highs, H stock is nothing short of intriguing for cautious TFSA investors with too much cash on the sidelines.
Quebecor
Quebecor is a very interesting telecom that most Canadians are likely to pass up in favour of the Big Three. Indeed, most of us know the firm for its involvement with Freedom Mobile and its ambitions to become the number-four major telecom competitor. With a superb management team that’s excelled within the border of Quebec, I think Quebecor may be the firm that can rise to become player number four in the national carriers.
At 12.6 times trailing price to earnings, I think investors have doubts that Quebecor can pull off a successful national expansion. Other firms have tried and fallen flat. Still, I don’t think it’s wise to bet against the Quebec-based giant, as it looks to embark on a growth plan that could propel dividend growth for years to come.
The stock sports a 3.73% dividend yield, with a 0.41 beta. The high dividend and lower correlation to the TSX make for a pretty secure play for hard times.
