The Safer Dividend Stocks I’d Consider If I Had $20,000 to Put to Work

Hydro One (TSX:H) stock and another dividend darling for low-beta growth.

Key Points
  • In a shaky market, lean into lower-beta dividend stocks for steadier returns instead of chasing beaten-down, high-volatility names that can swing hard.
  • Hydro One and Loblaw look like two defensive, premium-quality options—Hydro One for predictable utility-style dividend growth and Loblaw for resilience if food inflation and affordability pressures stay high.

Broad markets may be bouncing back, even as geopolitical tensions escalate once again, but long-term investors should continue to play things cautiously (think lower-beta dividend stocks) rather than jumping straight into the deep end with the hardest-hit names (like software stocks) that have the most potential to ricochet sharply.

Indeed, the rewards of being a hero are incredibly high, provided you get the timing right. But unless you’ve got a stomach of steel and are willing to ride out continued losses, I’d argue that going with affordable dividend plays might be the way to get decent results as well as a much better night of sleep.

In this piece, we’ll check in on a few names that I’d be willing to consider if I had a significant sum of cash to put to work. Whether you’ve got $20,000 that’s just sitting in a low-rate savings account or you have a big lump sum in a guaranteed investment certificate (GIC) that’s maturing in the coming weeks, the following pair, I think, are worth a closer look if you’re looking for the perfect mix of steadiness and reliable dividends.

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Hydro One

Hydro One (TSX: H) might be the best bond proxy in Canada, thanks in part to its monopolistic share of the Ontario market. With an intriguing mix of assets that can power slow, but very steady dividend growth each and every year, the name stands out when markets face bigger potholes in the road. With the stock recently rolling over a bump, now down just over 3% from its all-time highs, I think there might be a chance to get a somewhat better deal.

Though investors can expect to pay a bit of a mild premium relative to historical averages, with shares now going for just over 26 times trailing price-to-earnings (P/E). The dividend yield, now at 2.3%, is also not much to write home about. Arguably, it’s not the best time to load up on the name, given its higher multiple and lower yield.

That said, I do think the predictability (6% in annual dividend growth expected) and lower-risk growth in an increasingly unpredictable macro climate make the stock worth the premium, especially if the rest of your portfolio is underexposed to the steady utilities that can help keep things grounded.

Loblaw

Loblaw Companies (TSX: L) is another premium company that has performed well of late, and I think it is deserving of its premium price of admission. The stock goes for 29.5 times trailing P/E. That’s quite high for a grocer. But when it comes to well-run defensive growth staples, I think the case for paying the growth multiple is quite strong, especially at a time like this. Why?

First, the affordability crisis (think food inflation) has the potential to get worse. And, with that, the retailers are going to need to keep doing their best to attract Canadians with better deals. With dirt-cheap brands, like No Name, and high-value discount stores, such as No Frills, continuing to pick up traction, I view Loblaw as one of the best Canadian stocks to ride out another wave of food inflation.

With shares fresh off a correction, I’d argue now is a great time to look for an entry point. If Loblaw can keep delivering value in another affordability crisis, I think it can keep its growth going strong. With soaring oil prices hurting Canadians’ pocketbooks while food inflation stays overheated, Loblaw might be the play to make it through a really tough year for the consumer.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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