Investors building a portfolio of Canadian dividend stocks need to take into consideration the risk that comes from market volatility. When the economy slows, some companies may be forced to cut or even suspend their dividends. This leaves investors with reduced income and potential losses.
To minimize that risk, there are a handful of great Canadian dividend stocks that have defensive moats which can withstand market shifts and continue to pay dividends.
Here’s a look at three great stocks that have not only survived these shifts in the past but have also thrived in them.
Source: Getty Images
Canadian Utilities offers a regulated cash flow
Canadian Utilities (TSX: CU) is one of the Canadian dividend stocks that should be on the radar of investors everywhere. The company is both a utility and energy-infrastructure company, with a focus on electricity and natural gas distribution.
Utility stocks like Canadian Utilities are some of the most defensive picks on the market. That’s because they generate a predictable revenue stream that is backed by long-term regulated contracts that last for decades.
The sheer necessity of the service provided makes it defensive. People need power and heat, even during recessions when they cut back on other things, such as eating out.
That reliable revenue stream allows the utility to invest in growth and pay out one of the most stable dividends on the market.
In fact, Canadian Utilities holds the longest dividend increase streak in Canada, with an incredible 54 consecutive years of increases. This makes the stock one of just two Dividend Kings in Canada.
As of the time of writing, Canadian Utilities offers a yield of 3.8%.
TD Bank is built for downturns
It would be impossible to mention the best Canadian dividend stocks to own and not mention at least one of Canada’s big bank stocks. One bank for investors to consider today is Toronto-Dominion Bank (TSX: TD).
TD is the second-largest of the big banks, operating a cross-border network that stretches across Canada and down the East Coast of the U.S. from Maine to Florida. The bank earns interest on its loans, fees on its accounts, and revenue from its capital-markets services.
And while the stable Canadian segment generates the bulk of its revenue, TD’s growth-focused U.S. operation continues to grow.
During a recession, TD and its peers are often regarded as safer picks than other options. That’s because even during downturns, people continue to borrow money, spend money and save money. Loan losses can rise during a recession, but TD’s diversified operations help absorb those risks.
Turning to income, TD earns its place among the best Canadian dividend stocks. The bank has paid out dividends for nearly two centuries and has provided annual upticks to its quarterly payout for over a decade without fail.
As of the time of writing, TD offers a yield of 3%.
Metro offers a defensive moat with steady demand
Rounding out the three Canadian dividend stocks for investors to consider is Metro (TSX: MRU). Metro operates in one of the most recession‑resistant industries of all: grocery and pharmacy retail.
Metro operates its pharmacy and grocery businesses under a variety of different banners. They include Metro, Food Basics and Jean-Coutu. Additionally, Metro benefits from its strong private-label brands and focus on everyday essentials.
That’s important because consumers may cut back on discretionary purchases during downturns, but they still need food and essential household items. This makes Metro’s revenue base far more stable than that of companies tied to other forms of spending.
Turning to dividends, Metro offers a smaller yield than the other two stocks mentioned above, but still fits well in a portfolio of Canadian dividend stocks. As of the time of writing, Metro offers a yield of 1.9%.
Metro has also provided investors with over two decades of consecutive annual increases to that dividend. That fact alone makes this a buy-and-forget option among the Canadian dividend stocks in any portfolio.
Will you buy these Canadian dividend stocks?
The trio of stocks mentioned above provides a simple, defensive dividend basket. Each provides a different segment of the market, income potential, and unique defensive appeal.
That mix can help investors not only survive a recession, but also keep collecting dividends as the economy recovers.
