Canada’s tech giant Shopify returned a mind-blowing 6,000% between 2015 and 2021. But in 2022, it lost nearly 80% of its market value. Nobody thought that a wealth creator like Shopify would see an almost counterpart wealth erosion as well. But that’s not just Shopify. Many growth stocks created massive shareholder wealth over the last decade and lost steam amid macroeconomic challenges in late 2021.
And its not a one-time thing. Markets work in cycles. As interest rates turn lower, markets shift toward riskier assets like growth stocks. Contrastingly, they dump those assets when rates turn higher and take shelter in defensives.
But there are some pockets in the market that display remarkable stability in almost all cycles. They might not beat growth stocks in bull markets, but when it comes to capital protection and stable dividend income, these names are almost unbeatable. So, here are two such TSX stocks that are relatively less volatile and will let you sleep peacefully at night.
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Fortis
Top utility stock Fortis (TSX:FTS) is one classic defensive name. It has seen stable financial growth, mainly due to the stable demand, for the last many decades. That has facilitated steady dividend growth for shareholders. As a result, Fortis has increased its dividends for the last five consecutive decades and yields a decent 4%.
The key is stable earnings growth, irrespective of market cycles. Fortis has seen its net income grow by 3%, compounded annually in the last decade. That’s way too low compared to broader markets. However, this enables regularly increasing dividend and less-volatile stock.
Utilities also have higher payout ratios. That means a significant chunk of their earnings is distributed among shareholders as dividends. Fortis has an average payout ratio of 65%, which is in line with the industry average. In comparison, broader markets give away around 20% of their earnings as dividends.
FTS stock has returned a decent 9% compounded annually in the last decade. That’s much lower compared to some growth names. However, when you seek stability, growth has to take a backseat.
TC Energy
Canadian energy pipeline operator TC Energy (TSX:TRP) is another name for those seeking stability. It operates one of the biggest natural gas pipeline networks in North America and also has a large power-generation portfolio. As a result, its utility-like business model enables earnings stability and stable shareholder returns.
TRP stock has returned 7% in the last decade and 11%, compounded annually since 2000. It has a reliable dividend profile that yields 7%.
Energy pipeline businesses are relatively less risky compared their peers in the upstream verticals. Volatile oil and gas prices do not impact midstream companies’ earnings much. This works well when oil prices are low, as pipeline names offer stability. As a result, TRP stock has underperformed since last year, even when the energy price environment had been supportive. In the last 12 months, it has returned -18%, while TSX energy producers at large have returned 10%.
If you are looking for a safe, income-generating stock in the energy space, TC Energy is an attractive bet. It aims to increase dividends by 3-5% annually for the next few years. Its less-volatile stock and stable total-return prospects make it an appealing bet.
