One way to understand volatility is to think of it as a measure of smoothness. Think of gently rolling hills as opposed to jagged mountain peaks and deep crevasses. You can make a lot of money trading the big moves that volatile stocks provide, but they can also ruin your day with alarming speed and alacrity. If you are not a stock market thrill seeker, then perhaps you should leave the bucking broncos of the TSX to the day traders. Low-volatility stocks are smooth movers that will fit nicely into your portfolio.

Low volatility doesn’t mean low returns

A look at the fact sheet for the Low Volatility Index shows that it has consistently outperformed the TSX in total growth. In the past 10 years, the index lost ground only one time in 2008. Over that same period, the TSX finished negative three times in 2008, 2011, and 2015. As of October 31, the average dividend yield for the low volatility index was 4.74% compared to 3.34% for the TSX.

Not every stock in the current group is headed in the right direction, but most are. Two telecom stocks in the index that recently caught my eyes are BCE (TSX:BCE)(NYSE:BCE) and Telus Corporation (TSX:T)(NYSE:TU). Both are large wireless and internet providers in Canada and are currently gaining momentum.

In spite of the generous dividend yield of 5.58% that BCE provides, its stock price has drifted lower for most of 2018. However, the release of its third-quarter results sparked a buying frenzy. On November 1, the day the report was released, BCE posted a 3.4% gain, the most substantial single-day move of the year. Since then the stock has risen sharply, and at the time of writing, BCE is trading at $56.95, almost 12% higher than its October low.

Telus has moved up nearly 8% from its October low and is trading at $47.69 at the time of writing. It also was inspired by the release of its third-quarter results on November 6 and has been climbing steadily since. Telus has a current dividend yield of 4.67%

Final thoughts

Both of these companies have been strong performers over the years. The combination of low volatility, strong momentum, and generous dividend yields make BCE Inc. and Telus Corporation excellent choices for dividend bargain hunters.

The post These 2 Low-Volatility Stocks Are Gaining Momentum appeared first on The Motley Fool Canada.

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An Effective Trading Strategy for This Market

Using this calculation as an entry for a long-term trade can achieve great results. Over the last 10 years, buying a stock just as it enters a stable trend and holding for one year has resulted in a profit 67% of the time, with an average gain of 21% and an average loss of 14%. Statistics can sometimes be deceiving, however, and a closer look at the numbers shows that this system is most effective in the first few months after a market downturn. During these periods, the profitability rises to 80% when held for one year.

The latest stocks to generate signals using this method are Metro Inc. (TSX:MRU) and Aecon Group Inc. (TSX:ARE). Both are constituents of the S&P/TSX Canadian Dividend Aristocrat Index.

With 338 stores spread around the country, Metro is one of Canada’s largest grocery and drug store operators.  My simple strategy worked well for Metro following the 2011 market swoon. A trading signal was generated on July 27, 2012, which resulted in a 34% profit. Another trade was taken following the 2015 market slide, which resulted in a 9% gain.  Metro has recently completed a massive triple bottom chart formation, which began back in the 3^rd quarter of 2016. Technical traders view triple bottoms as evidence of a market reversal. In this case, it is confirmation of our latest signal.

Aecon Group is a heavy construction and infrastructure development company providing services to both the private and public sectors. Among its latest projects is a 20% stake in the new $5.7 billion Gordie Howe International bridge, which will span the Detroit River from Windsor, Ontario to Detroit, Michigan. My strategy only produced one signal on Aecon that fell within the first few months after a decline. That occurred back in 2009 and resulted in a 9% profit.

Both companies are currently outperforming the market, and look ready to start making new highs in the new year. What can go wrong?

In my research for this article, I chose one year as the holding period for trades because I wanted to demonstrate that the system was suitable for long-term investors. I am not recommending that as an exit strategy.  I could just as easily have chosen 18 months or two years, and in fact I did research those periods. The system does perform better with holding periods one year or longer, but lengthening the holding period from one year to two years did not significantly change the overall performance. It did, however, drastically affect the performance of individual stocks within the test. The moral of this story is that in a dynamic market such as ours, finding good exits can be just as challenging as finding entries. A prudent position sizing strategy should be your first line of defense.

The post Simple Momentum Strategy Generates Long-Term Buy Signal on These Dividend Stocks appeared first on The Motley Fool Canada.

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The October low appears to be the completion of a massive ‘Head and Shoulder’ pattern which began back in mid-2015. This is a classic formation indicating that the latest four-year cycle has ended and we are now in the early stages of a new cycle. Some caution is required at this point since, in my experience, “VEE” bottoms are often not “THE” bottom and there is a chance the sector may re-test the October low in the coming weeks. Nevertheless, the sector is currently outperforming the general market and this a unique opportunity to get in early on a move that should provide growth and dividend income in the coming months.

Head and shoulders above the rest?

Two stocks worth looking at right now are Emera (TSX:EMA) and Fortis (TSX:FTS) (NYSE:FTS). Emera, headquartered in Halifax, has a market cap of $10.123 billion with a current dividend yield of 5.45%. Fortis has its headquarters in St John’s. It has a market cap of $19.726 billion with a dividend yield of 3.91%.

Both companies are constituents of the S&P/TSX Composite Low Volatility Index. Only the 50 least volatile stocks of the broader TSX Composite index are included in this index. Low volatility with high dividends is a nice combination for those who are past the age where being violently jostled is enjoyable!

As a bonus, both stocks are currently outperforming the S&P/TSX Utilities Index and the broader market. Emera began the year at $47.19, fell to a low of $38.40 in October and has since risen steadily to $43.46 at the time of writing. Down for the year but a gain of 13% since its low, Fortis has bounced off its four-year average three times in 2018 forming a quasi-triple bottom. It has risen dramatically from its $41.11 October low to close at $46.24 at the time of writing, for a gain of 12% in the last month.

A good time to buy!

In terms of seasonal performance, Emera has performed slightly better than Fortis in December but neither displays any strong seasonal tendencies in the last month of the year. Both, however, have been strong performers in January. Emera has gained ground in January five of the last six years, this year being the only exception. Since 2013, January has been Emera’s best month of the year with an average gain of 2.1%. Fortis has performed slightly better than Emera in January with an average gain of 2.2%; however, it also posted a loss this year in January.

In conclusion, Emera and Fortis are two low-volatility, high-dividend members of a sector that is currently outperforming the general market and are showing strong momentum as they enter a period of strong seasonal performance. Personally, I’m considering selling one of my gold miners to make room in my portfolio for one of them…

The post Are Utility Dividend Stocks Coming Back in Style? appeared first on The Motley Fool Canada.

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Pembina Pipeline (TSX:PPL)(NYSE:PBA) is engaged in the transportation of oil and gas through its pipeline networks. The company has a market cap of $22.568 billion with a current dividend yield of 5.03% and is a constituent of the S&P/TSX Canadian Dividend Aristocrats index. To qualify for inclusion in the Aristocrat index, a company must have raised their dividend payout every year for the past five years. Historically, Aristocrats have fared better in market downturns and recovered quicker.

Adding to its luster, the company was recently added to the prestigious list of “Canada’s Top 100 Employers” for 2019. That kind of thing may not be easy to spot on the balance sheet, but it does bode well for the future. It’s nice to know you are dealing with an ethical company that cares about its people and the community!

Pembina’s stock price has moved up off its October low and is currently posting a 5% gain for November. The stretch from July through November has not been kind to Pembina’s stock price in recent years. Prior to 2018, the stock price posted losses for July in each of the last five years, and four of the last five years for November. With three mediocre months sandwiched in between, Pembina’s performance over that period has been sluggish, but with the recent strong push upward, it looks like Pembina’s slow period may be ending early this year.

Historically, December has been a strong month for Pembina. The stock price has risen in four of the last five years, with the only blemish coming in 2015 when it lost 1.8%. Overall, the stock has gained an average of 5.7% in December since 2013. December also holds the record for Pembina’s highest single monthly gain of 13.4% back in 2014. March had the second-largest monthly gain of 11.1% in 2013 followed by 10.9%, again in December of 2013.

December has traditionally been the best month of the year for the TSX index. In the 10 years from 2003 to 2013, the TSX fell in December only one time, back in 2011. Even in 2008, one of the worst years in financial history, the TSX still managed to post a small gain in December. Finding winners in December used to be easy!

But times have changed. In the last five years the TSX has performed anemically at best in December. The title of “Best Month” now belongs to July, up five of the last six years and posting an average 1.8% gain. When I’d started researching this story, I’d expected to find dozens of candidates with equal or better performances than Pembina to choose from. I did find a few that could match Pembina’s performance, but none that could equal its dividend yield.

One last point of interest to mention: Pembina has outperformed the market in December every year for the last five years. This means that even in the year it lost money, it still fared better than most of the TSX. Pembina Pipeline is simply the best choice you can make right now!

The post Why This Is a Top Dividend Stock to Buy in December appeared first on The Motley Fool Canada.

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