Let’s not get cute. Every investor needs stability for their diversified portfolios. Here are some defensive TSX stocks that are good core holdings to buy at current levels.
One line of defence is that they’re stocks that pay out nice dividend income for investors. In fact, investors could even hold the stocks to build generational wealth.
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Brookfield Infrastructure Partners
Brookfield Infrastructure Partners (TSX:BIP.UN) is a rising dividend star that has increased its cash distribution for approximately 16 consecutive years. In the long run, it has delivered above-average growth versus the utility sector. For example, its 15-year cash distribution growth rate is 10.3%.
Going forward, it targets a cash distribution growth rate of 5-9% supported by funds from operations (FFO) growth of over 10% per year. To be sure, it averaged a sustainable FFO payout ratio of 70% in the past decade.
Having a lot of debt on its balance sheet is probably what has pressured the stock, as we’ve experienced higher interest rates since 2022. Its trailing 12-month interest expense is 2.4 times the levels in 2020, its assets are 1.7 times the levels in 2020, and its cash distribution is 25% higher. The stock has declined 21% since the beginning of 2022, lifting its cash distribution yield to approximately 5.6%, which is decently attractive.
Although Brookfield Infrastructure has large debt levels and a long-term debt-to-capital ratio of 81%, its debt is primarily at the asset level. So, in the worst-case scenario, it would hand over bad assets to creditors. It also maintains an investment-grade S&P credit rating of BBB+.
Its portfolio is also globally diversified across critical infrastructure assets, including electric and gas utilities, rail operations, terminals, export facilities, toll roads, intermodal containers, transmission pipelines, gas processing plants, natural gas storage, and data centres, etc.
At $40.38 per unit at writing, it provides another layer of defense for investors today from its discounted valuation. Analysts think the stock trades at a meaningful discount of about 25%.
Here’s a third layer of defence. The top utility stock also has an ongoing capital-recycling program to redeploy capital from mature assets into new investments for better risk-adjusted long-term returns.
TD Bank stock
Another dividend stock that has been weighed down is Toronto-Dominion Bank (TSX:TD). The stock has been hit by bad press surrounding money laundering, which would result in a fine for TD. It’s not something that the large North American bank can’t recover from, though. But it will take time for growth to resume. So, investors need to be patient.
TD stock has declined about 22% since the start of 2022. Today, the stock trades at a multi-year low valuation of about 9.5 times earnings. This is a good opportunity for long-term investors to buy shares, hide them in the closet, and come back at least three to five years later—all the while enjoying a nice quarterly dividend.
At $75.87 per share at writing, TD stock offers a dividend yield of almost 5.4%, which is at the high end of its 10-year yield range, as shown in the graph below. Its payout ratio is estimated to be about 60% of diluted earnings and 51% of adjusted earnings this fiscal year.
TD Dividend Yield data by YCharts
