It’s time to think about positioning your portfolio with resilience in mind before volatility has a chance to send the TSX Index or S&P 500 into a correction. Indeed, it seems like this artificial intelligence (AI)-driven stock market can’t seem to fall into a 10-15% decline. The tailwinds riding behind AI and optimism about the Trump administration may very well help stocks continue inching higher without taking a dip anytime soon.
Either way, I believe that there are some so-called “safe” dividend stocks that investors should pick up to play a bit of defence before any other investors have a chance to drive the price of admission higher. Indeed, defensive dividend stocks can be pretty boring, and while they won’t gain by huge amounts as AI stocks can, I view them as playing a huge role in a portfolio.
Remember, stocks don’t rise every single year. Eventually, the bear will return, and when it does, it’s the “safe” stocks that stand to fall far less than the red-hot plays and the rest of the stock market.
When it comes to high-quality defensive dividend payers that can fare rather well in almost any sort of market environment, Hydro One (TSX:H) and Loblaw (TSX:L) stand out from the pack. Let’s check out each name a bit closer to see if it’s worth buying for this new year.
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Hydro One
Hydro One is more than just a utility firm; it’s one of the steadiest low-beta names out there, and it’s perfect for those defensive investors seeking a place to park cash ahead of a correction. The stock sports a nice 2.84% dividend yield and a below-average 0.34 beta, entailing less market risk than your average stock. Of course, the dividend yield is markedly lower than it normally stands at around 3-4%.
Indeed, you can blame the last five years of impressive appreciation (H stock is up more than 78% in five years) for the compression in the yield. Either way, I view Hydro One as a predictable defensive that can deliver on both fronts: capital gains and dividends. As the firm looks to grow its bottom line at a 5-7% annual rate, perhaps dividend growth hunters should be willing to pay a premium for the name.
Either way, I’m a fan of the firm’s ability to bolster its transmission business over the next several years. It’s a premier name that deserves every bit of its premium multiple. If anything, a richer multiple may be warranted if 2025 sees the stock market get shocked by a pullback.
Loblaw
Loblaw is another all-weather stock that’s worth buying on strength. The well-run grocer trades at 26.7 times trailing price-to-earnings, a premium to the historical average. Still, I think the momentum can continue as management takes advantage of opportunities in the Canadian grocery retail scene. Notably, consumers want lower prices as they look to recover from the recent wave of inflation.
Additionally, if Trump tariffs are imposed as promised, get ready for more inflation and a potential flock back to discount retailers. Not only does Loblaw offer plenty of budget options (think No Name), but it seems to be doubling down on its discount banner (think No Frills) as it seeks to take share away from rivals in the grocery scene. Indeed, it’s very hard to thrive in a market where margins are as thin as they could be.
Either way, I view Loblaw as one of the firms that can not only keep up but also pull ahead. The stock is up over 185% in five years for a reason: it’s a profoundly well-run retailer that can challenge on price.
