New investors should be ready to load up on the defensive dividend plays to handle whatever is thrown their way over the coming months and quarters. Indeed, an economic recession in Canada is a realistic possibility, depending on how hefty the Trump tariffs will be. If 10-25% (or even higher) tariffs on a wide range of goods end up getting imposed, a wide range of businesses could be directly (and indirectly through a decay of consumer spending) able to take a fairly large hit straight to the chin.
Many of these businesses will see their share prices drop by significant amounts over a near-term timespan, mostly based on fear of how bad things could get. Though I don’t like timing exogenous events, I think that any severe tariff-induced pullbacks between now and March could be a buying opportunity. Indeed, things could have the potential to get bad in a bear-case scenario of sorts.
We recently heard a wide range of commentary from top managers who are scrambling to make changes before tariffs can leave a hefty impact on sales and earnings growth moving forward. If the magnitude and severity of tariffs aren’t as bad as feared, perhaps there’s room for a relief rally going into the second quarter. Either way, be ready to play some defence as the road higher for the TSX Index is met with just a bit more resistance.
In any case, here are two names that could be recession-ready if worse comes to worst and tariffs send Canada into a mild-to-moderate recession at some point over the next year.
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Hydro One
Hydro One (TSX: H) is arguably one of the best long-term utility stocks to own for years. Apart from being one of the utility sector’s best performers in recent years, with 54% in capital gains over the last five years, Hydro One’s highly regulated cash flows have made it a name that’s perfect for portfolios that want bond-like attributes with a bit of a growth jolt. Indeed, Hydro One has been a better bet than bonds in recent years.
Though the yield has compressed to 2.8%, I still think that the value proposition is intriguing while it’s going for 23.79 times trailing price to earnings (P/E). Sure, it’s a premium price for a utility stock, but with a business model that’s less tied to the state of the economy, I would look to pick up a few shares if you’re looking to ride out a potential recession.
As the firm further expands in northern Ontario, Hydro One looks poised to become one of the best defensive dividend growers out there for investors looking to batten down the hatches.
Loblaw
Loblaw (TSX: L) will do its best to minimize the blow of potential retaliatory tariffs that could hurt the wallets of everyday Canadian consumers. Indeed, retaliatory tariffs on food items from the U.S. could breathe fresh life back into inflation. As the wallets of Canadians become pressured, they’ll probably rotate back to the low-cost retailers they did during the peak in inflation we witnessed over a year ago. Indeed, Loblaw stood out as a share-taker as it managed through the inflationary chaos.
If tariffs do give way to 2022-esque levels of inflation, my guess is Loblaw will be able to stand out once again. I think the stock is still dirt-cheap at 24.84 times trailing P/E. With a 9% dip off all-time highs and a 1.14% dividend yield, perhaps L stock is the defensive to own if you’re worried about stagflation or a recession.
