Steady dividend stocks can be great for new investors who are just a tad worried about what happens when the market rally runs out of steam. Undoubtedly, market corrections happen, and they can happen at the drop of a hat and with zero warning. That’s what makes them so scary. And though a 10% pullback from peak to trough may not seem like anything to get worried about, they can feel quite horrid when going through them because there’s no telling how low the markets can go as shares sink day after day.
Indeed, the Nasdaq-led bear market of 2022 made it seem like stocks could only go down, and the extended bearish descent made stocks seem less timely than they actually were. Eventually, in the depths of autumn 2022, stocks began rising again. And they haven’t really looked back since. That’s the value of playing the long game. So, as the brilliant Warren Buffett once put it, “Be greedy when others are fearful.”
The case for steady dividend stocks amid rising market enthusiasm
As we head into the Spring season, investors shouldn’t look to chase the hottest stocks so far this year. Instead, they should focus on attractively valued dividend plays that may have what it takes to hold their own for the years to come.
In this piece, we’ll check out two intriguing income plays that I think could be in for somewhat smoother sailing, even if markets are hit with a correction between now and year’s end. Personally, a correction in the first half of 2024 wouldn’t be out of the ordinary, especially given the glorious rally in the S&P 500.
Consider shares of Hydro One (TSX:H) and Fortis (TSX:FTS), two intriguing Steady Eddies that look quite cheap at current levels. Should a correction hit and investors consider the defensive dividend plays again, both names may be in a good spot to zig as the rest of the market zag (lower).
When it comes to companies with monopoly-like (or monopolistic) share of their markets, Hydro One is a name that should come to mind. It’s a dominant utility in the province of Ontario with a cash flow stream that almost seems untouchable. While jolting growth could continue to prove challenging in 2024 and 2025 (regulatory roadblocks are typical in the utility scene), I believe H stock is worth a fat premium to the peer group for its wide moat and predictable cash flow stream.
At $40 and change, the stock goes for 22.3 times trailing price to earnings, with a 2.96% dividend yield. Now near all-time highs, I’d be inclined to nibble gradually into the name rather than buying a whole position all at once. Either way, H stock is a defensive dividend play for the decades!
Fortis is a more interesting utility stock, in my humble opinion, given its intriguing mid-single-digit growth prospects and its lengthy track record of rewarding shareholders with consistent dividend raises. If you’re an income seeker who loves annual raises, Fortis stock is a great play to hold, even when the stock doesn’t do a heck of a lot over a long period of time.
In the past five years, FTS stock has risen just 11%. That’s some weak performance, thanks in part to the 2022 plunge on the back of higher interest rates. As rates move lower over the years, I think FTS stock could be in a spot to outperform again.
For now, the stock looks dirt cheap at 17.15 times trailing price to earnings, with its 4.41% yield. Between H and FTS stock, the latter seems like a bargain that’s tough to pass up, even in today’s optimistic market climate.