The Canadian equity markets are upbeat this month amid the signs of inflation easing down and the decision by the Federal Reserve not to increase its benchmark interest rates. The Canadian benchmark index, the S&P/TSX Composite Index, has risen 6.9% this month. Despite the improving investor confidence, the ongoing conflict in the Middle East and sticky inflation are still causes of concern.
If you believe the market could turn volatile in the coming months, you can buy the following three defensive dividend stocks. These companies would safeguard your capital while delivering a stable passive income.
Fortis
Fortis (TSX: FTS) would be one of the excellent defensive stocks to buy right now, given its substantial exposure to low-risk transmission and distribution business and it’s regulated asset portfolio. It meets the electric and natural gas needs of around 3.4 million customers, generating stable and reliable cash flows irrespective of the economic outlook. Its reliable cash flows have allowed the utility to raise its dividends for 50 consecutive years, while its forward yield stands at 4.18%.
Further, the company has announced a $25 billion capital plan from 2024 to 2028. These investments could drive its rate base at a CAGR (compound annual growth rate) of 6.3%. Meanwhile, the company’s management expects to allocate 55% of the funds from the cash generated from its operations, 11% from equity, and the remaining 34% from eternal debt. So, these investments won’t substantially increase its debt levels. Besides, the company sold its Aitken Creek natural gas storage facilities, strengthening its balance sheet. So, I believe Fortis’s future payouts to be safe, making it an attractive buy.
Telus
Another top defensive dividend stock I am bullish on would be Telus (TSX: T) due to the growing telecommunication service demand, recurring revenue streams, and high dividend yield. The digitization of business processes, and remote working and learning has created multi-year growth potential for the telecom sector. Amid the expanding addressable market, Telus continues to invest in expanding its 5G and broadband services. Currently, the company has 3.1 million PureFibre connections, while its 5G network covers 84% of Canadians.
Further, the telco’s healthcare business is growing at a healthier rate amid digital health transaction growth and increasing virtual care membership. Although the company’s Agriculture and Consumer Business was flat in the recently reported third-quarter earnings, its long-term growth prospects look healthy. So, I believe BCE’s future dividend payouts are safe. It currently pays a quarterly dividend of $0.3761/share, with its forward yield at 6%.
Pizza Pizza Royalty
Pizza Pizza Royalty (TSX: PZA) would be my final pick. The highly franchised restaurant company generates stable and predictable cash flows by collecting royalties from its franchisees based on their sales. So, high inflation is not hurting its financials. Besides, the company has posted solid same-store sales growth in the first three quarters amid increased traffic and higher transaction value.
New launches, value messaging, and promotional activities drove its traffic. Besides, the company also passed on increased expenses to its customers, thus increasing its check size. Amid its strong financials, the Toronto-based company has raised its monthly dividends three times, with its forward yield currently at 6.46%. Further, I believe the uptrend in the company’s financials will continue amid its restaurant network expansion and old restaurant renovation plans.
