Better Buy to Prep for a Recession: Telus Stock or Fortis Stock?

Telus (TSX:T) and Fortis (TSX:FTS) are great dividend studs to consider ahead of a potential economic recession in Canada.

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With all the jitters over rates and a potential recession up ahead, it’s easy to subscribe to those incredibly gloomy “sell in May and go away” headlines. Every May, it’s hard to avoid not being bombarded with such headlines that note a list of risks and potential pitfalls that could lie ahead.

Undoubtedly, nobody wants to be caught skating offside when the recession hits. That said, we could face one of the most-anticipated recessions in decades. Bubbles in the tech sector have already burst, expectations have been lowered accordingly, and the latest slate of earnings hasn’t exactly been horrid.

When it comes to the tech titans, earnings have actually been pretty decent. Further, some of the bulls on the Street are optimistic that a recession may be avoided entirely. It certainly can. Even if it doesn’t, a short-lived economic downturn may not be the worst thing in the world if it means doing away with inflation.

In any case, investors shouldn’t overreact to the near-term factors moving the markets. Instead, they should focus on picking up shares of high-quality businesses at reasonable multiples. With a long-term mindset and a knack for spotting value, you can improve your shot at making money even in an off year.

Consider Telus (TSX:T) and Fortis (TSX:FTS), two dividend juggernauts that could move steadily higher, even as a recession causes market volatility to stay at elevated levels.

Telus

Telus is a well-run telecom firm with a solid 4.89% dividend yield. Over the past six months or so, shares have been feeling the weight of higher rates. Today, the stock is off around 17% from its peak and seems to be a great value play for investors hungry for reliable dividends.

Looking ahead, I’d look for Telus (a member of the prestigious Big Three telecoms) to attempt to turn the tides after a mixed fourth quarter. Per-share earnings for the fourth quarter (Q4) came in at a modest $0.23, falling shy of the $0.29 estimate. Though it was technically an earnings miss, there were notable bright spots. The company gained 42,000 net broadband subscribers and 17,000 television subscribers. Indeed, TV isn’t quite dead yet — at least not for Telus, which has done a spectacular job of bundling home services.

On the wireless front, Telus looks dominant. With a new fourth player in Quebecor that could emerge over the next decade, though, investors would be wise to monitor Telus’s wireless segment. Personally, I think Telus is least at risk from a new entrant. It has a powerful network and has the budget to stay ahead of the pack.

Fortis

Fortis is a retiree staple and highly regulated utility that’s a great addition to any portfolio when the market tides roughen. The stock trades at 21.4 times trailing price to earnings, which isn’t all too cheap from a historical perspective. Still, the 3.8% dividend yield is slightly on the high side, partially thanks to higher rates. As interest rates look to hold steady and march lower, I think Fortis stock’s dividend yield could dip accordingly, as more investors pile into the name.

At writing, shares sport a 0.17 beta, meaning shares are less likely to follow the TSX Index in either direction on any given day. Though Fortis stock is up around 19% off its 2022 lows, I still view the stock as an intriguing value for longer-term investors seeking stability and income growth over time.

Better buy: T or FTS stock?

I like Fortis slightly more at these levels. If we’re in for more than a mild recession, Telus could face greater choppiness than Fortis. Further, Fortis’s cash flows seem more predictable over the span over the next 10 years.

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. The Motley Fool recommends Fortis and TELUS. The Motley Fool has a disclosure policy.

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