September and October are traditionally volatile months for Canadian stocks. This year was no different. The S&P/TSX Composite Index dipped as much as 5% in early October.
Certainly, there is no shortage of things to worry about. There are trade wars, an energy crisis, inflation, rising bond rates, and elections that could disrupt market momentum.
If you are looking to get defensive, you could use $2,000 to buy these two quality dividend stocks.
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Fortis: One of Canada’s greatest dividend growth stocks
Fortis (TSX: FTS) is the ideal dividend stock to hold when the market dips. It has a low Beta of only 0.41.
This simply means its stock reacts with a lower correlation to the broader market. If the market dips 10%, Fortis might only dip by half that. Now that does work on the inverse. When the market soars, this stock may not rise quite as much.
Fortis operates nine regulated utilities across North America. It is 100% regulated, and 95% of its assets are distribution or transmission. It forms the essential backbone of the electric/energy grid in the jurisdictions it operates. It provides safe, reliable service. In return, it gets a set rate of return on the investments it makes.
Fortis is investing around $5.5 billion a year to grow at a 7% compounded annual growth rate (CAGR). It has maintained a well-structured balance sheet to support this growth with only modest equity dilution.
Right now, Fortis is aiming to grow its dividend by a 4–6% CAGR. Fortis pays a 3.3%, which may not seem like much.
However, this stock has a 52-year dividend growth track record behind it. For context, its current $0.64 per share quarterly dividend is 65% bigger than it was 10 years ago and 300% larger than it was 20 years ago. For long-term steady gains in capital and income, Fortis is a stalwart for a portfolio.
Loblaw: As defensive as you will find
Loblaw Companies (TSX: L) is another perfect dividend stock to hold when the market takes a dip. It has a Beta of only 0.33, even lower than Fortis. What is more defensive than a grocery and pharmacy chain?
People need food, daily essentials, and medication, regardless of what the market is doing or how the economy performs. As Canada’s largest grocery retailer, it offers grocery options to every income bracket. Loblaw is focusing a major part of it growth plans on expanding its value-focused brands across Canada.
Loblaw has a few core advantages. Firstly, its scale gives it tremendous power with suppliers. The grocery retailer can keep prices lower than competitors because of the national clout it holds. Secondly, it has a leading loyalty program that rewards consumers with discounted groceries.
Loblaw only yields 0.9%. However, it has an incredibly low 25% payout ratio. This provides considerable flexibility to keep growing its dividend and steadily keep buying back stock (like it has done for years). L stock has raised its dividend consecutively for the past 14 years.
Loblaws is by no means the cheapest stock you will find. However, for its record of solid total returns, it is a great bet for when the stock market dips.
