Recession-Proof Your Portfolio: Top Picks for the Cautious Canadian

Telus and Canaduan Utilities are dividend royalty that can bestow you with reliable passive income.

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As if high-interest rates and a potential recession aren’t enough, the latest conflict in the Middle East could further destabilize the market. While the TSX displays resiliency, whether the market can endure headwinds from various fronts is uncertain.

Meanwhile, cautious Canadians have ways to counter market risks instead of ditching their stock holdings. You can recession-proof your portfolio with low-volatility stocks like Canadian Utilities (TSX:CU) and TELUS Corporation (TSX:T). Their share prices could plummet, but the dividend payments should be rock-steady regardless of the economic environment.

Dividend king at your service

Canadian Utilities enjoys a lofty position on the TSX and is popular with dividend earners. This top-tier utility stock is Canada’s first dividend king. A company with 50 consecutive years of dividend increases earns such status. Its dividend growth streak is now 51 years.

This dividend king aims to grow dividends in-line with CU’s sustainable earnings growth, which aligns with growth from the regulated and long-term contracted investments.

The $8 billion diversified global energy infrastructure company derives revenues from three main divisions: power generation, global enterprises, and utilities. CU delivers comprehensive solutions in energy infrastructure and retail energy. Moreover, the scale and reach are global.

CU serves end-users in Alberta and Northern Canada, provides electricity in Mexico, and operates hydroelectricity and an electricity system in Puerto Rico. In Australia, it owns highly efficient natural gas-fired power plants. The global portfolio of utilities and energy infrastructure assets is responsible for CU’s excellent track record of dividend growth.

Utilities are sensitive to interest rate movements and rising rates affect financial performance. In the first half of 2023, revenues and adjusted earnings dipped 3% and 11% year over year to $2 billion and $317 million, respsectively. The decline isn’t worrisome as CU’s financial position is never in doubt because of the highly regulated and long-term contracts.

Dividend aristocrat

A 5G stock like TELUS remains a viable option for risk-averse investors. The $33.2 billion telecom and information technology company is a dividend aristocrat owing to 19 consecutive years of dividend hikes.

TELUS is stronger than ever because of multiple revenue generators and growth drivers. Besides the core telecom business, it has TELUS International, TELUS Health, and TELUS Agriculture & Consumer Goods (TAC).

In Q2 2023, adjusted net income dropped 35.3% to $273 million versus Q2 2022, while free cash flow increased 36.1% year over year to $279 million. Despite the profit drop, the board declared a 7.4% increase in the quarterly dividend.  At $22.92 per share (-8.84% year-to-date), the dividend offer is a lucrative at 6.42%.

Darren Entwistle, TELUS’ President and CEO, said, “Our leading customer growth is reflective of our consistent, industry-best client loyalty across our Mobile and Fixed product lines.” The customer count grew 18.6% to 293,000, a new second-quarter record.

“For the second quarter, our TELUS team once again demonstrated execution strength in our Tech business segment, characterized by the potent combination of leading customer growth, complemented by strong operational and financial results,” adds Entwistle.     

Safety nets

For some market analysts, a global market correction before year-end is possible due to various headwinds. However, Canadian Utilities or TELUS can be your safety net if you want to stay invested despite the uncertainties.

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 recommends TELUS and Telus International. The Motley Fool has a disclosure policy.

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