First, stocks are for long-term investing. No matter the quality of the business, investors must bear the stock volatility and the risks in the business. Safer stocks could deliver more reliable returns from sustainable dividends. Some investors also select stocks that are more resilient than their peers.
Typically, stocks that have excessively high yields are riskier than ones that tend to increase their dividend payouts. In this article, I’ll discuss examples of defensive stocks that pay safe dividends.
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RBC stock
The big Canadian bank stocks have been under pressure this year. Royal Bank of Canada (TSX: RY), or RBC, stock is relatively resilient. Even so, the bank stock has still declined approximately 11% from its 2023 peak.
Royal Bank stock is as quality as the big Canadian banks get. Not only is it resilient and derive most of its revenues from its core businesses in Canada and the United States, but it also maintains a diversified business, including meaningful operations in personal and commercial banking, wealth management, capital markets, and insurance.
The dividend stock’s trailing 12-month (TTM) payout ratio is sustainable at approximately 49%. In the last quarter, it also had about $80.3 billion of retained earnings that could serve as a buffer for more than a decade of dividend payments.
You’ll notice that its dividend yield of about 4.4% at writing is at the low end of the Big Six Canadian bank stock yield range of 4.3-6.7%. Again, safer stocks tend to have lower yields compared to their peers.
Additionally, the company scores a strong S&P credit rating of AA-. As the sector continues to be pressured over the near term, investors looking for a defensive pick can consider accumulating RBC shares for long-term investment.
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Sun Life stock
Sun Life Financial (TSX: SLF) stock has also been a relatively resilient stock. Additionally, it enjoys a quality S&P credit rating of A+. At $66.40 per share, the stock is actually inexpensive, trading at about 10.6 times its blended adjusted earnings, while its earnings per share is estimated to increase by about 7% per year over the next three to five years.
Additionally, Sun Life stock has a good dividend track record. It has maintained or increased its common stock dividend every year for at least the past 20 years. Its five-, 10-, and 20-year dividend-growth rates are about 9.6%, 6.7%, and 8.3%, respectively.
Sun Life’s TTM payout ratio is sustainable at approximately 55%. In the last quarter, it also had about $12.3 billion of retained earnings that could serve as a buffer for about seven years of dividend payments.
The life and health insurance stock actually trades close to its 52-week high. Since the Canadian stock market is experiencing a pullback, it may be possible for investors to grab the quality shares at a lower price over the next few months.
Investor takeaway
There are multiple facets to determining the safety of a stock. For example, it might pay safe and growing dividends that provide periodic returns no matter what the stock price does. Additionally, you can improve the safety of your principal by looking at the stock valuation. The greater the discount you can get from a quality stock typically during a market correction, the greater the wealth creation potential you have, such that you can beat inflation and improve your purchasing power.
