Different types of risk are priced into stocks. Idiosyncratic, or stock-specific risk, is what most investors spend most of their time focusing on. That’s because when an investor picks or chooses one particular company, its own unique risks relative to other companies are the factors investors can most directly impact by their investing decisions.
However, market risks are a whole other category worth exploring. Some companies are simply more economically sensitive than others. That means that when the market sneezes, they catch pneumonia.
Thus, for those investors who have an overall bearish tilt toward equities right now, picking individual stocks with less market-specific risk is a good idea.
Now, there aren’t any companies that are truly “market-proof” or free from this market risk. But here are two companies I think could be among the best of the bunch for those seeking stable and consistent long-term returns.
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Restaurant Brands
Among my top picks as a defensive dividend stock with a business model that could thrive in times of uncertainty is Restaurant Brands (TSX: QSR).
Shares of the fast food giant have been moving steadily higher of late, as investors buy into the narrative that more fast food sales are likely in a declining market, not less.
For those looking to dine away from home, the delicious and low-cost options provided by Restaurant Brands via its world-class banners, which include Tim Horton’s, Burger King, Popeye’s and other chains, makes this a must-own stock for investors betting on continued trade-down in an inflationary environment.
With a current dividend yield of 3.5% and a decent multiple (relative to the company’s historical levels), this is a stock I think is a screaming buy, even after its recent rise.
Manulife Financial
Another sector of the economy I think most investors would agree consumers can’t really go without is insurance. Manulife Financial (TSX: MFC) is among the largest Canadian insurers and is a company I’d argue has both defensive and growth properties worth considering.
What’s most impressive is that Manulife’s strong growth and dividend profile are matched by a relatively low valuation. With a dividend yield of 3.6% and a valuation at just 15 times trailing earnings (and an even lower forward multiple), Manulife’s recent stock price surge has done little to dent the reality that this is a top-tier dividend stock with a valuation to salivate over.
I think that over the long term, a portfolio which holds both stocks should outperform those that underweight these holdings. Manulife remains a strong buy in my books.
