Volatility Is Coming: Why Fortis Inc. (TSX:FTS) May Be the Smartest Bet You’ll Make All Year

Fortis Inc. (TSX:FTS)(NYSE:FTS) is undervalued given the potential crash that could happen in 2019.

| More on:

The S&P 500 is melting up again after flirting with a bear market between October and December. While there’s still another 5% to recover from the flop, I’d caution investors from jumping into overly cyclical stocks if you’re at all feeling like you’re missing out on easy money.

Last January, the markets rallied sharply only to correct violently in the following month. Investors were feeling sanguine, Ray Dalio said you’d feel “stupid” for holding cash, and “market melt-up” was the term that was being thrown around in the mainstream financial media.

Indeed, everybody was optimistic over the growth spurt that President Trump’s corporate tax cuts would grant, but as everybody looked through rose-coloured glasses, I saw a dark side to the rally, as I encouraged investors to trim profits and to load up on quality, defensive, dividend-paying stocks just weeks before the markets corrected sharply.

Euphoria over stronger economic growth turned into fear over rising interest rates as Fed chair Jerome Powell feared inflation, causing him to hit the rate hike button furiously, despite a seeming lack of rising inflation in the economic data. Economic strengthening (melt-up) led to rate hikes (melt-down), and now that the market is no longer going up against the Fed, investors are betting on a U.S.-China trade deal that may not happen until the last minute — Q4 2020, right before the big U.S. presidential election.

In the meantime, quarterly results will continue to exhibit signs of a recession in the making. Over the last few quarters, we’ve seen that trade tariffs were starting to have a material effect on the earnings results of many market-sensitive companies, and as consumer confidence continues to flop in the quarters ahead, I think it’d only be prudent to batten down the hatches as the stage seems to be set for another choppy year.

We’re indeed at a crossroads right here. Are we headed for that much-anticipated recession? Or will we find relief from a trade deal, in which case we have to worry about the Fed turning hawkish once again?

In any case, I’d hold on tight, as I have a pretty strong feeling that the U.S.-China trade deal that bulls are betting on will not be reached until late 2020. So, in the meantime, count on meetings, moods, and commentary to dictate the trajectory of the stocks over the next year.

We’re pretty much in the dark, so I’d encourage an injection of certainty into your portfolio with Fortis (TSX:FTS)(NYSE:FTS), a reliable defensive dividend stock I’d prescribe to all portfolios at this rather shaky market.

I’m not a huge fan of giving “shallow” forward-looking market projections, but to temper the FOMO mentality of many beginner investors, I like to put things in perspective, so such beginners aren’t victimized by the pros (institutional investors) or the machines (trading algorithms), whose selling activities may control where the markets are headed over the next year.

Yes, Fed chair Powell is off our back, but there are cracks in the Canadian and American economy that’ll continue to widen until President Trump has another deal in the bag that’ll warrant a sequel to Trump’s widely read 1987 hit The Art of the Deal.

The cracks are going to widen until they’re patched up. So, in the meantime, Fortis will act as an “uncrackable” cash cow that’ll stabilize your portfolio from volatile movements and allow you to have peace of mind when the stock market continues on with its wild roller-coaster-like swings. While volatility isn’t necessarily a bad thing for those who can stomach it, beginners and older investors may want to minimize their exposure to volatility, so they’re not scared out of the investment game for good.

So, if the October-December plunge was past or near your pain tolerance, it’s doctor’s orders to get some Fortis in your portfolio while the price of admission remains low. You’re paying 18.5 times trailing earnings for a 3.8% dividend that’ll increase 5% per year. That may seem expensive, but in the environment we’re in right now, I’d say the slight premium is more than worthwhile.

Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette owns shares of FORTIS INC.

More on Dividend Stocks

hand stacks coins
Dividend Stocks

This 7.7 Percent Dividend Stock Pays Cash Every Single Month

This TSX income stock has been paying above-average yields for decades now.

Read more »

investment research
Dividend Stocks

Best Stock to Buy Right Now: TD Bank vs Manulife Financial?

TD and Manulife can both be interesting stock picks for today, depending on your investment style.

Read more »

A worker gives a business presentation.
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

These stocks are out of favour but could deliver nice returns over the coming years.

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 5.5 Percent Dividend Stock Pays Cash Every Month

This defensive retail REIT could be your ticket to high monthly income.

Read more »

Confused person shrugging
Dividend Stocks

Passive Income: How Much Do You Need to Invest to Make $600 Per Month?

Do you want passive income coming in every single month? Here's how to make it and a top dividend ETF…

Read more »

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »