September is a rather uneasy time for stock markets, and while new investors might seek to get in after the season of volatility as they look to punch a ticket to the seemingly more favourable festive season (who couldn’t use a nice Santa Claus rally going into the year’s end?), I’d encourage investors to consider maximizing their time within the markets rather than trying to get in at the exact perfect moment.
Indeed, just because September doesn’t have the best historical record of gains doesn’t mean it can’t be a good month for your portfolio, especially if you’re a value-minded investor who’s not inclined to chase whatever is hot at any given moment. While I’m not against playing things just a bit more defensively as the summer shifts to fall and stocks look to potentially cool along with the temperature, I do think that investors shouldn’t make too much of the near term.
Remember, choppiness day-to-day or month-to-month is the price paid for true appreciation over the long term. If you’re just a bit unnerved about the state of the AI trade and heightened valuations, I think buying low-cost defensive dividend stocks is a smart move. It turns out you can get peace of mind when a momentum trade looks to unravel, as it seems to be doing right now with some of the semiconductor plays (the go-to way to bet on the AI trend).
Source: Getty Images
Hydro One
In this piece, we’ll look at a boring but very powerful name in Hydro One (TSX: H) that can help you better deal with any spikes in volatility we’re sure to encounter in the coming months and quarters.
Of course, the stock is perhaps best known for its low beta (less implied correlation to the broad TSX Index), which currently sits at 0.38, as well as its rock-solid dividend and good amount of dividend growth over the years. Indeed, operating in a monopolistic climate makes for a pretty good night’s sleep, as investors, more or less, know what they’re getting into with the name.
In my view, it’s one of the more premier utility stocks on the entire TSX Index because of its high barriers to entry around its Ontario transmission lines. And with growth prospects south of the border, Hydro One really does feel like one of those names that can allow you to have your cake (less volatility and more predictability on earnings) and eat it too (dividends and steady appreciation).
One major knock against the stock, in my view, is that the premium price tag has always been a little too lofty for me. More recently, though, shares dipped more than 15% from all-time highs in what was a painful, unorthodox move for such a Steady Eddie dividend payer.
A reasonable price for remarkably high-quality earnings
While the stock isn’t quite a steal at 21.6 times trailing price-to-earnings (P/E), with a modest 2.7% dividend yield, I do think that it’s a very fair price to pay for one of the better sleep-easy dividend stocks around.
With solid managers and pretty much set-in-stone 6–8% annual earnings growth over the next year, I’m inclined to view Hydro One as a high-quality name that might offer more value than the broad market itself. Yes, utility stocks have taken one to the chin, but it’s starting to get overdone.
