With the U.S. market recently wobbling on the back of tariff fears (as the TSX Index held its own), the risk-off appetite almost seems palpable. Either way, it’s never too early to play defence with a portion of your portfolio. Undoubtedly, bull markets can’t carry on forever, and when the perceived risks (and valuations) are elevated, perhaps sticking with a boring but proven defensive dividend grower with a low beta can pay off.
In this piece, we’ll check out two utility stocks that are worth stashing your Tax-Free Savings Account (TFSA) for added stability as we move through a turbulent March that could see Trump tariffs come online and perhaps a few other surprises that could weigh on the TSX Index’s latest rally. Of course, utility stocks may not be the biggest gainers in a bull run. But, at the very least, they won’t be in the blast zone come the next big stock market sell-off, whether it’s a correction or the return of a bear market.
So, if you’ve got an extra $2,000 to put to work, perhaps one of the following defensives is worth stashing away for the next few years.
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Hydro One
Hydro One (TSX: H) stock boasts a low 0.34 beta (implying a low correlation to the TSX Index), a 2.8% dividend yield, and an impressive amount of upside momentum for a highly regulated utility firm. Indeed, Hydro One has a wide moat surrounding its transmission business in Ontario. It was built to survive even the worst of economic downturns.
The company’s latest quarterly earnings growth numbers were quite decent, with annual earnings growth projected to come in a tad higher (6-8%, topping the original 5-7% projection) until the end of 2027. With a robust dividend that’s well-covered and subject to greater growth, I’d not sleep on the name if you’re looking for better sleep in the face of higher market volatility. The stock trades at a relatively rich 23.46 times trailing price to earnings (P/E) but still looks to be a solid offering for those serious about combating volatility.
Given the width of its moat and the growth potential of the dividend, I find shares to be a compelling pick-up, even though it’s not the cheapest utility play on the TSX. Sometimes, you’ve got to be willing to pay up for those truly wonderful businesses rather than seeking out the lower multiples that tend to be assigned to less-than-impressive firms.
Brookfield Infrastructure Partners
Brookfield Infrastructure Partners (TSX: BIP.UN) stock has spent the last year rebounding from the nasty plunge of 2023. While the opportunity to snag a deep-value bargain has come and gone, I still view the infrastructure play as a great low-cost dividend play to stash away for the long run.
At the time of writing, shares yield 5.3% — a bountiful amount that’s sure to meet the needs of most passive-income seekers. What’s more, the dividend stands to grow at an above-average rate as the firm looks to bolster its exposure to “real” assets that pull in the cash flow. It’s a well-diversified infrastructure firm and one worth holding for life, regardless of the economic environment or trajectory of rates. However, lower rates would be a boon for growth as the firm looks to ramp up new projects.
