After a November to remember (one of the best months for the stock market in recent memory), it’s not hard to feel optimistic, hopeful, and even euphoric about what the new year has in store. Indeed, remember that economic recession that many folks had on their radars?
It certainly feels like we’ve moved past it. But investors shouldn’t grow complacent just because the appetite for risk has increased by the slightest of margins in recent weeks. When others grow more greedy, you, as a contrarian investor, should become more skeptical, as the calls for an economic “soft landing” grow.
Of course, you shouldn’t be gloomy, as others become hopeful as inflation peaks out and interest rate hikes come to a pause, with potential rate cuts waiting around the corner!
Lower rates could pave the tarmac for a softer landing. But it’s no guarantee!
Indeed, the Bank of Canada may have the means to trim interest rates sooner rather than later. But does that mean it’s time to load up on those crushed high-growth technology stocks as they look to add to their newfound momentum?
I’m not so sure. Though there may be overvaluation in certain semiconductor stocks with obvious skin in the generative artificial intelligence (AI) scene, I’d not dismiss the broader tech sector as a bubble on the verge of collapse.
Valuation matters, as it always has, regardless of which sector you’re looking at. While generative AI may justify higher multiples on certain tech stocks, I think that some new investors may be guilty of buying with little consideration for the value they’re getting. When you buy based on momentum and not value, you can run into hot water.
In this piece, we’ll focus on one of the best value plays with dividends that investors may wish to consider if their portfolios aren’t too prepared for an economic hard landing. Though less likely after an upbeat November and tamer inflation reports, I find it’s better to brace yourself for a hard landing, even if the odds are in favour of a soft, smooth landing on the tarmac ahead.
Fortis (TSX:FTS) stock is one of the best dividend stocks to pick up if you’re looking to improve your portfolio’s defensive traits. Indeed, it’s pretty tempting to ditch your utility shares as you look to the tech scene for bargains going into what could be a falling-rate year.
That said, lower rates are also a boon to firms outside of the tech scene. Fortis is one of them. As rates fall, the rates on your Guaranteed Investment Certificates (GICs) could fall drastically come renewal time. As GICs become less bountiful, Fortis stock and many other dividend plays may be viewed as more competitive again.
Additionally, lower borrowing costs are a good thing for a firm like Fortis, which has a pretty steady growth trajectory for a utility firm. Indeed, mid-single-digit dividend growth can be expected every year. In a falling rate environment, I’d argue Fortis stock is a steal right now as investors chase “hotter” investments that stand to benefit most from a retreat in rates.
And if rates don’t fall as fast as expected?
Fortis can still fare pretty well, as it’s not as economically sensitive as your average stock. With a 4.3% dividend yield and a mere 17.81 times trailing price-to-earnings multiple, FTS stock is a sleeper value play for investors looking to play the long game.