Dividend stocks are great to hang onto through times like this when markets are in a spot to go nowhere over a prolonged period. The first half of 2023 has been about relief, and with markets sagging going into the end of the third quarter, questions linger as to what the market’s fate will be as we head into a potentially chilly winter.
Regardless, investors should insist on getting paid cash dividends for braving the market roller-coaster. Should stocks continue to hover well below the highs, dividends may very well be all you’ll have to show for your patience. In an era when you can get a decent return (let’s say 5%) for taking on zero risk, you’ll need to ensure you’re appropriately compensated for taking on any risk.
With a turbulent September now in the rearview, I think Canadian investors now have a chance to get some pretty great companies at rock-bottom multiples. Further, dividend yields are starting to swell again, making them irresistible to income investors who have a strong stomach for volatility.
In this piece, we’ll look at two dividend payers that also have strong, reliable, and relatively predictable growth trajectories. So, as Canada’s economic growth dwindles, the following Canadian stocks seem more than worth the price of admission.
Fortis (TSX:FTS) is a utility that doesn’t tend to make headlines for big needle-moving events. Though the dividend yield has swollen amid rising interest rates, not a heck of a lot has changed about the fundamentals or growth trajectory.
You’ll still get low-to-mid single-digit (dividend) growth and far less correlation to the rest of the market (beta currently sits at 0.2). Over the past year, though, FTS stock has been a rougher ride than the TSX. Shares are down more than 20% from their highs, just shy of $65 per share. With a 4.6% dividend yield, the stock is also more bountiful than it has been historically.
High rates aren’t going anywhere anytime soon, but Fortis stock seems oversold and undervalued here at around 17.4 times trailing price-to-earnings. Macro headwinds could continue for many more quarters to come. But beyond that, one has to be encouraged by the type of stability you’ll get from the name. As Canada enters a recession, FTS stock doesn’t necessarily have to shed more ground from here. It’s already lost so much amid rate headwinds and a rotation back into the growth plays.
Waste Connections (TSX:WCN) is another low-risk stock that can make you quite wealthy over the long term. Yes, it’s still technically risky compared to guaranteed investment certificates, but the risk is worth taking for a shot at enviable gains. Over the last five years, shares have gained more than 80%.
Even though the market has gone nowhere for around three years, WCN has continued to be a steady performer for investors. I think more of the same will be in the cards, even as economic growth goes flat, and then, negative. At the end of the day, Waste Connections offers a vital service that’s in demand, regardless of how fast the economy is growing.
The 0.75% dividend yield isn’t impressive, but the pace of growth is likely to be over the next decade. The 41.5 times trailing price-to-earnings multiple is definitely lofty. But you’d be hard-pressed to find such a defensive stock that can plow right through a recession year as effectively as Waste Connections.