Why This Dividend Stock Can Handle Market Volatility

Fortis (TSX:FTS) shares can handle volatility once storm clouds move in for the TSX.

Key Points
  • Expect volatility to return even after a smooth TSX run, and keep investing steadily while focusing on individual stocks that offer a better margin of safety than the index.
  • Fortis looks like a solid defensive dividend pick after a ~5% pullback, with lower market sensitivity and more reasonable pricing that could appeal if investors rotate back to stability.

Market volatility can suddenly surge when you least expect it, especially after prolonged periods of relative calm. With the broad TSX Index moving higher, with less in the way of choppiness compared to other markets, most notably the S&P south of the border, questions linger as to how much longer the steady ascent can last and whether it’s bound to end in tears at some point down the line. Indeed, it’s virtually impossible to time the market consistently over time.

Instead, it can pay dividends to keep investing gradually over time, regardless of what the one-year chart looks like. Even if the TSX Index is closer to fairly valued or even a tad on the frothier side, you don’t have to buy the broad market. You can pick and choose the individual names that are undervalued, offering a wider margin of safety than the broad baskets, which are pretty much a basket of stocks, with a heavy weighting towards the financials and energy names.

investor looks at volatility chart

Source: Getty Images

Fortis

Either way, this piece will have a look at a fantastic dividend payer that, I think, stands to be spared even when the great market rally of 2026 gets hit with an unexpected drawdown. Enter those steady shares of Fortis (TSX: FTS), which look especially interesting after falling just over 5% from its brief peak hit at the back end of July.

Of course, Fortis isn’t an exciting name, and it’s a retiree staple that many conservative investors tend to flock to at the first signs of trouble for the market or the Canadian economy. The 0.43 beta entails less correlation to the rest of the market, which is a good thing when things turn bearish, but, of course, less than ideal when we’re in the midst of a bull market.

In my view, Fortis shares are still a worthy pick-up at a time like this, when all seems well, and analysts are more than willing to raise the bar on their year-end price targets. With the firm posting some okay second-quarter results, investors have treated the modest but still fairly decent results as an opportunity to take profits and rotate funds elsewhere.

Indeed, we seem to be entering a bit more of an environment where the retail crowd is just a bit more willing to take on more risks for a shot at richer rewards. Even as defensive dividend stocks fall out of favour while risk-on returns to glory, I think any dips in a name like Fortis are more of a buying opportunity for investors looking for stability before anything upsets the markets or causes a rotation out of growth and into value.

Shares are starting to look modestly priced again

At 23.0 times trailing price to earnings, Fortis now looks like a decent deal. Though the 3.26% dividend yield is still a tad light compared to the five-year historical average. While time will tell if the latest 5% drop leads to a full-blown correction or something worse, I do think that a wider window to buy could open in this second half, especially as the risk-taking appetite goes into overdrive and investors begin to neglect predictable earnings and dividend growers just like Fortis.

Sure, Fortis is only exciting when the markets are a scary place to invest, but for those seeking a fair price of admission, I think that FTS stands out going into mid-August.

Fool contributor Joey Frenette has positions in Fortis. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

More on Dividend Stocks

happy woman throws cash
Dividend Stocks

The Ideal TFSA Stock: A 5.9% Yield-Paying Constant Cash

Enbridge’s predictable cash flows, substantial growth pipeline, and long history of dividend increases underpin its long-term investment appeal for TFSA…

Read more »

woman gazes forward out window to future
Dividend Stocks

Dividend Income in Retirement: What Could Go Wrong?

Dividend investing is a proven way to create income in retirement but you must know the risks you need to…

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

A 5% Monthly Payer I’d Buy for My TFSA: About $100 a Month on $24,000

Canada’s largest residential landlord offers a high yield, reliable monthly income, and a tax-sheltered foundation for TFSA investors.

Read more »

Two seniors walk in the forest
Dividend Stocks

Can Dividends Replace a Paycheque in Retirement?

Can dividends in retirement replace your paycheque? Explore how Scotiabank, RioCan REIT, and Fortis can help build a steady retirement…

Read more »

Sliced pumpkin pie
Dividend Stocks

The Fees That Quietly Eat Into a Small Investment

Many funds charge outrageous fees, but broad market index funds like the iShares S&P/TSX Capped Composite Index ETF (TSX:XIC) usually…

Read more »

dividends grow over time
Dividend Stocks

The U.S. Dollar is Rising Again: Here’s What VFV Investors Should Know

VFV investors receive both U.S. equity returns and currency translation.

Read more »

businessmen shake hands to close a deal
Dividend Stocks

A Canada-India Trade Deal Could Be Big for Infrastructure: Is WSP Stock a Buy?

India could require roughly US$840 billion of urban infrastructure investment over 15 years.

Read more »

woman considering the future
Dividend Stocks

How Much Would You Need to Invest to Earn $100 a Month in Dividends?

These two monthly-paying dividend stocks can boost your passive income in this uncertain macroeconomic environment.

Read more »