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While there’s no guaranteed “safe” stock, there are certainly “safer” stocks that offer less volatility and more predictability, features especially appealing to low-risk investors.
These safer investments are often found within defensive sectors characterized by inelastic demand – industries that provide essential services or products people need regardless of economic conditions. Utilities and consumer staples are prime examples because people continue to need electricity and food, regardless of the state of the economy.
Among these, a standout choice for cautious investors is Fortis (TSX:FTS), a distinguished player in the utility sector. Fortis operates as a leading electric and gas utility company across Canada, the United States, and several Caribbean countries.
If you’re all about lower-risk dividends, here’s a closer look at why Fortis deserves a spot on your watchlist.
It is a low-volatility stock
One compelling reason I consider Fortis a “SWAN” (Sleep Well At Night) stock is its impressively low beta of 0.17. But what does that really mean for investors?
In the investing world, beta measures a stock’s volatility in relation to the overall market, which has a beta of 1. Let’s consider two hypothetical stocks to illustrate this concept:
- Stock #1 has a beta of 2. This means it’s twice as volatile as the market. If the market goes up by 1%, Stock #1 might go up by 2%. Conversely, if the market dips by 1%, Stock #1 could potentially fall by 2%.
- Stock #2 has a beta of 0.5. This indicates it’s half as volatile as the market. In a market rise or fall of 1%, Stock #2 would move by just 0.5%.
With Fortis’s beta of 0.17, it’s even more stable than our calm Stock #2 example. If the TSX falls by 1% on any given day, Fortis’ stock price, on average, would be expected to decrease by only 0.17%.
This stability is a significant advantage. It means that while Fortis might not soar as high as more volatile stocks during market rallies, it also doesn’t plummet as deeply during downturns.
For many investors, especially those with a low tolerance for risk, preserving capital and minimizing losses is half the battle.
It’s a dividend king
Fortis not only offers a forward annual dividend yield of 4.42%, which is respectable on its own, but its real allure lies in the impressive growth of this dividend.
Fortis stands out as one of Canada’s two esteemed dividend kings, a U.S. title reserved for companies that have not just paid but consistently increased their dividends for an astonishing 50 years.
Achieving such a status is no small feat, considering the economic and financial upheavals Fortis has navigated to maintain and grow its dividend payouts.
The company has withstood the tumult of Black Monday in 1987, the burst of the dot-com bubble, the devastating impact of the 2008 financial crisis, and, more recently, the unprecedented challenges brought on by the COVID-19 pandemic.
While it’s important to remember that no dividend can ever be considered 100% safe – since unforeseen circumstances can always arise – I think Fortis’s track record suggests it’s about as close as one can get.
