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Canada’s primary stock exchange has displayed remarkable resiliency this year. The Bank of Canada’s rate-cutting cycle also triggered a year-end bull run. Rate-sensitive sectors such as financial, real estate, and utility have risen from their slumps and should end 2024 in positive territory.
However, investors can’t be complacent because market volatility could heighten in 2025 due to slower economic growth. The suggestion is to buy defensive stocks now to ensure capital protection and stability.
Dividend king
Fortis (TSX:FTS) belongs to the utility sector and wears a crown. The $30.45 billion electric and gas utility company is a dividend king owing to 51 consecutive years of dividend increases. At $60.19 per share, FTS outperforms the utility sector year to date at +15.12% versus +9.41%. If you invest today, the dividend yield is 4.09%.
The low-risk profile stems from ten highly regulated utility businesses in Canada, the U.S., and the Caribbean. A compelling reason to invest today is management’s average annual dividend-growth guidance of 4% to 6% through 2029. Given the new $26 billion capital plan for 2025-2029, the target is achievable.
In the first three quarters of 2024, net earnings increased 7% year over year to $1.21 billion. For the third quarter (Q3) of 2024, the bottom line rose 6.2% to $420 million. Its president and chief executive officer (CEO), David Hutchens, said the strong third-quarter results reflect utility growth and prompted the board to approve a 4.2% dividend hike (the 51st).
Fortis will fund the five-year capital plan primarily by cash from operations and regulated debt. The midyear rate base will increase from $38.8 billion in 2024 to $53.0 billion by 2029, a 6.5% compound annual growth rate (CAGR).
Management is open to expansion and growth past the five-year capital plan if opportunities arise, including the electric transmission grid in the U.S. to facilitate cleaner energy interconnection.
Corporate-wide goals are also to reduce direct greenhouse gas (GHG) emissions by 50% by 2030 and 75% by 2035 from a 2019 base year. ESG (environmental, social, and governance) investors should take note of these targets. Market analysts consider Fortis a core income stock because of the steady cash flow generated by the diversified business.
Consumer defensive
Empire Company Limited (TSX:EMP.A) is ideal for risk-averse investors. The $10.26 billion conglomerate is an iconic Canadian food retailer. It also operates a real estate business through Crombie, a $2.6 billion real estate investment trust (REIT). The equity interest is 41.5%.
At $45.28 per share, the consumer defensive stock is up 31.99% year to date and pays a modest 1.86% dividend. Because the store network is a top priority, Empire has accelerated investments in renovations, conversions, and new stores. It also enhanced store processes, communications, and data capabilities.
In Q3 2024, sales and operating income increased 0.3% and 2.1% to $7.77 billion and $319.1 million. Michael Medline, Empire’s president and CEO, said the solid quarterly results indicate a gradually improving economic and consumer environment.
Play defence
Uncertainty is on the horizon due to escalating geopolitical risks and a potential tariff war with the United States. However, defensive stocks like Fortis and Empire have historically endured market headwinds.
