The year 2023 is the year of recession for Canada. The recession might not be as aggressive as it was in 2008, but it may still leave scars on your portfolio. If you are worried about the recession and want to make investments that may have the resilience to keep floating during the recession or recover relatively quickly if a market crash is on the horizon, one safe Dividend Aristocrat should be on your radar.
A food and pharmacy company
Food and pharmacy are considered healthy and resilient business because it connects to two of the most basic human needs: sustenance and health. This makes Loblaw Companies (TSX:L) a safe bet from the business model perspective. The company has over 2,400 locations across the country, and nine out of every 10 Canadians live within 10 kilometres of a Loblaw location.
This presence augments and strengthens the business model, because not only does the company sell two things people can’t stop spending money on, regardless of their economic condition, but it’s also easily accessible.
Another strength the company possesses is the diversity of its portfolio. There are 18 different brands just under the company’s food business banner. Then there are eight health and wellness brands. The company also has three fashion and beauty brands under its banner, but the footprint is not substantial enough to be comparable to its primary businesses — i.e., food and health.
A stable dividend stock
One of the reasons reliable dividend stocks are coveted in a recession is the predictability and surety of returns. A Dividend Aristocrat like Loblaw, which has grown its payouts for at least 10 consecutive years, can be relied upon to maintain and grow its payouts during a recession. This notion is further endorsed by its business model, which leads to financial stability.
The dividends themselves are quite stable and sustainable. The payout ratio hasn’t crossed over into dangerous territory (over 100%) for a single year in the last decade and it has remained below 50% for most years. The company grows its payouts by a decent margin.
If you are worried about a recession, buying a Dividend Aristocrat like Loblaw can help you anchor your portfolio to a source of relatively predictable returns. Any capital appreciation you may get once the market becomes bullish and the economy is healthy again would be an added bonus. The only chink in its armour is the low yield, but the stability of dividends and payout growth definitely softens the blow.
Loblaw is among the blue-chip stocks of Canada, which is currently available at an almost fair valuation. The long-term growth potential of the stock is quite healthy, as it has risen by about 176% in the last decade alone. So, buying it for its predictable dividend-based returns (during the recession) can be much more than a short-term fix, and you may hold the stock for years, even decades.