The Perfect Dividend Stock to Protect Your Portfolio in Volatile Times

The perfect dividend stock protects your portfolio during volatile times and delivers rock-steady dividends no matter where the market turns.

| More on:
edit Person using calculator next to charts and graphs

Image source: Getty Images.

Some people avoid investing in stocks during volatile times for fear of losing money. Market pullbacks are natural occurrences, and volatility spikes whenever there’s uncertainty. However, long-term investors would instead stay the course and protect their portfolios.

If you’re into dividend stocks, Royal Bank of Canada (TSX:RY) is the perfect one to own. The giant lender is the largest company on the TSX by asset size and boasts a sterling dividend history. More importantly, its financial health and stability are never in question.

Limited fallout risk

The Canadian banking sector has safeguards and policies that would prevent collapses of financial institutions similar to the U.S. recently. Trevor Tombe, an economics professor at the University of Calgary, said the prospect of failure remains extremely low today. He added that besides having a high degree of concentration in its banking system, it’s vastly different from America.

According to Laurence Booth, a finance professor at the University of Toronto, a bank failure in Canada is extremely unlikely due to the conservative nature of its banks and regulators. He cited the financial crisis in 2008 and 2009 when Canadian banks passed the big test, and the country’s banking system has since gotten even more secure.  

Overcoming downturns

The COVID-19 pandemic spooked investors and fueled a market selloff in 2020. No stock, including RBC shares, escaped the downturn. Its stock price tanked to as low as $63.49 on March 23, 2020, but still finished at $95.24 at year-end, or 50% higher than its COVID low. The blue-chip stock did better than the broader market for the year at +7% versus +2.17%.

In 2022, when inflation soared dramatically, and interest rate hikes began, nearly all sectors had negative returns except for energy. However, RBC lost only 2% overall compared to TSX’s -8.66%. While net income in fiscal 2022 also declined by 2% year over year to $15.8 billion, its capital position remains robust (it has a 12.6% common equity tier-one ratio).

Resilient big bank

Dave McKay, RBC’s president and chief executive officer, said, “While market conditions continue to be tough, our 2022 results reflect a resilient bank that is well positioned to pursue strategic growth and deliver long-term shareholder value.” However, in the first quarter (Q1) of fiscal 2023, net income dropped 22% to $3.2 billion versus Q1 fiscal 2022.

The decline in net income was due to higher loan-loss provisions (up 407% to $532 million), the imposition of the new 15% federal tax, and rising expenses. Nevertheless, McKay said, “Our results are a testament to our diversified business model underpinned by momentum from client-driven growth across our largest segments as well as the benefit from higher interest rates.”   

Solid track record

The $182.57 billion bank’s dividend track record is now 153 years. When the ban on dividend increases was over in November 2021, RBC joined the dividend bonanza of big banks by increasing its quarterly dividend by 11%. For fiscal 2022, the total dividend payments of $5.41 billion represent a 5.92% increase from the previous year.  

If you invest today, RBC trades at $131.35 per share (+5.23% year to date) and pays a 4.02% dividend. The yield is not exceptionally high, but you have a quality stock that pays rock-steady dividends whatever the market does.  

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Happy family father of mother and child daughter launch a kite on nature at sunset
Dividend Stocks

Parents: Here’s How to Boost Your Monthly Income

Parents, you have enough to worry about. But if you can put aside even $40 per month, that can create…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Looking for a Reliable Retirement Income? Consider These Dividend-Paying Stocks

Investors looking to establish a reliable retirement income have no shortage of options to choose from. Here's a trio of…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

3 Oversold Dividend Stocks That Could Make You Rich When They Bounce Bank

Don't wait around for these oversold dividend stocks to bounce back, each certainly will, which is why now is the…

Read more »

A small flower grows out of a concrete crack.
Dividend Stocks

Down 8% Last Month, Canadian Tire Stock Is a Deal Heading Into June 2023

May wasn't a good month for the stock, but June has been different from the beginning and may present an…

Read more »

Canadian Dollars
Dividend Stocks

Need Passive Income Right Now? Turn $20,000 Into $152 Every Month

This dividend stock may be down now, but offers substantial passive income through its 9.31% dividend yield as of writing!

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

Is Exchange Income Stock a Buy?

Even within an industry, some stocks might be worth considering in certain market conditions, while others may be avoided.

Read more »

Dividend Stocks

2 Top Canadian Value Stocks in June 2023

Canadian Imperial Bank of Commerce (CIBC) stock is a compelling buy in June, and so is this Canadian REIT.

Read more »

Illustration of bull and bear
Dividend Stocks

2 Cyclical Stocks to Buy Before the Next Bull Market

The TSX index has been cyclical in the past 12 months, with neither a bearish nor a bullish trend fully…

Read more »