The TSX Index is in great shape to start the year, but don’t let the market’s strength let you lose sight of those defensive dividend payers that can hold in once the market turns volatile again. Indeed, it can be pretty easy to forget what it’s like to invest through a bear market, one that goes down for a full year or more. We’ve been treated to a great bull run, thanks in part to artificial intelligence (AI) and renewed market optimism.
That said, don’t look for stocks to continue the pace of gains forever. At the end of the day, the odd 20% drop in stock valuations is healthy. And those investors who have a bit of extra cash sitting on the sidelines may have the best opportunities to take advantage of the bargains that suddenly come to be once market tides begin to go out again. Indeed, it’s hard to sit on the sidelines with lower-risk securities, waiting for a market plunge.
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Still plenty of value as some big-name investors ring the register
While it’s tempting to follow in the footsteps of the smart money (most notably Warren Buffett) by taking some profits off the table while the stock market is hot and investors are more than willing to pay multiples that are a tad on the higher end, I think every investor needs to find the right balance.
That means staying invested in market highs and lows but also having a defensive portion of your portfolio that can help you more easily sail through those inevitable rough patches that few will ever see coming.
Could 2025 see such a rough patch? It’s impossible to tell. But it is a good idea, at least in my opinion, to be prepared. It’s always prudent to be prepared for storms, even if there are no signs pointing to one that’s coming.
Fortis stock: A great defensive dividend grower for bad (and good) times
That’s when I believe you can get a better price for your dollar when you batten down the hatches. Fortis (TSX:FTS) stock is a magnificent defensive stock that tends to shine in markets where stocks begin to show signs of lagging and sagging.
At just shy of $60 per share, Fortis goes for 18.3 times trailing price to earnings (P/E), which is too cheap given the stable cash flows and its rock-solid dividend growth profile (4-5% dividend growth) that can hold up even through the roughest of market hurricanes.
Now, I’m not expecting a storm to hit stocks in 2025. But is it really so bad of an idea to be prepared with a steady utility name while it’s trading at a modest discount?
The 4.1% dividend yield is attractive enough to stash the name away at the core of your Tax-Free Savings Account or Registered Retirement Savings Plan. Hopefully, FTS stock won’t be the top performer in any given year, but when the markets do finally sour on the exciting stocks, I’d be willing to bet that Fortis will be able to take on less damage.
