Trump tariffs and a 30-day delay in its implementation have set the countdown running. While talks are ongoing between the U.S. President and Canadian Prime Minister, investor heartbeats are increasing with every announcement. If tariffs are the final verdict, Canada could see a mild recession because of its export dependency on the United States. There is a reason why Prime Minister Justin Trudeau warned Canadians to brace up for difficult times and focus on Buy Canadian. This has encouraged Canadians to power up their defences. And what better defence than Canadian utility stocks?
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Adopting a defensive investment strategy amid volatility
Utility stocks generally cater to Canadians and are unaffected by the economic downturn. They also serve as good dividend stocks for a steady income. While many utility stocks give quarterly payouts, you could consider investing in Canadian Utility ETFs to get a monthly payout. Moreover, these ETFs can also diversify your money across major utility stocks such as energy, communication services, and pipeline stocks to ensure the payouts are not significantly affected by dividend cuts from any one company.
Two utility ETFs to buy for steady income
The Global X Canadian Utility Services High Dividend Index ETF (TSX: UTIL) is managed by Mirae Asset and invests in high dividend-paying utility services companies. It replicates the performance of the Solactive Canadian Utility Services High Dividend Index and generates an annual dividend yield of 4.9%.
Out of the 12 stocks in its portfolio, the ETF has around 84% of holdings in the top 10 stocks, which include Enbridge, Fortis, Telus, and AtlasGas. The ETF has a monthly payout and a 0.61% management expense ratio. The UTIL ETF has a relatively stable unit price and has given consistent dividends even during volatile market conditions.
BMO Equal Weight Utilities Index ETF (TSX: ZUT) is another utility ETF with 14 stocks in its portfolio. The ZUT ETF is different from UTIL as it equally invests in all 14 holdings. Moreover, it has holdings in Capital Power, which generates electricity. It has a 0.61% management expense ratio and an annualized dividend yield of 4.3%.
The ETF has paid steady monthly distributions since 2010 and has increased them at intervals.
How to plan your portfolio defence
You could consider allocating 10–20% of your portfolio to utility ETFs to ensure a 4% annual return. They could be your alternative to the 5% interest rate provided by Guaranteed Investment Certificates (GICs), which could see a drastic fall in the interest rate because of the Bank of Canada’s accelerated interest rate cuts.
For further defensive strategies, you could consider investing in REITs as they pay monthly distributions. The REITs are mostly affected by the real estate market. CT REIT grows its dividend by 3% annually, making it a long-term passive income investment for every season. An opportunistic REIT investment could be Slate Grocery REIT as it declared dividends in US dollars but pays it in Canadian dollars to Canadian investors. You could convert the weaker Canadian dollar into an opportunity and earn a higher dividend from Slate Grocery REIT.
