A fair warning before we dive into our two picks: all stocks carry market risk. Even the safest, most fundamentally sound, low-volatility stocks can take a bath when the market crashes. As it stands, market risk is systematic and cannot be diversified away. As long as you invest in stocks, there is risk.
That being said, it’s fair to call some stocks “safer” than others, whether due to a combination of resilient sector membership (e.g. consumer staples, utilities, healthcare), robust profitability, or low volatility relative to the market. Over-weighting these stocks can help smooth the ups and downs.
The TSX has many of these stocks, and most of them tend to be dividend payers too. For defensive investors, a screening for these high-dividend, low-volatility stocks could be a great strategy for steady income. Let’s take a look at my top two picks this week.
Saputo (TSX:SAP) is a major player in the Canadian food industry, specializing in the production, marketing, and distribution of dairy products. As a major player in the TSX consumer staples sector, Saputo benefits from being able to pass on inflationary costs to its end customers.
This, along with steady, evergreen demand for its products, has helped Saputo achieve a low five-year beta of 0.43 — a measure of volatility relative to the market. As it stands, Saputo is less than half as sensitive to the gyrations of the overall TSX.
Now, Saputo isn’t known for its massive yields compared to say, bank, or pipeline stocks. The company pays a modest forward annual dividend yield of just 2.12%. That being said, if your primary focus is stability, then this dividend should be considered a bonus for holding Saputo patiently.
If you’re looking for higher dividends and an even lower beta, then Fortis (TSX:FTS) could be a good pick. Fortis is a well-established utility company in Canada, focusing on the regulated electric and gas industry. As a sector, utilities tends to benefit from evergreen demand and strong regulation.
Currently, Fortis is one of the lowest-beta stocks trading on the TSX, clocking in with a five-year monthly beta of just 0.17. Again, this very low beta indicates that the stock has historically possessed a lower tendency to move the same direction and magnitude of the TSX.
Dividend lovers will probably prefer Fortis over Saputo for its much higher forward annual yield of 3.93%. In addition, Fortis has an impressive track record of raising its dividend for more than 45 consecutive years, making it one of the most reliable Dividend Aristocrats on the TSX.