Canadian retirees feeling rattled by the recent surge in volatility on the TSX Index may wish to rotate away from some of the higher-beta (higher correlation to the broad Canadian market) and into the defensive names that can better hold their own in the face of a recession.
Undoubtedly, with many investors rushing to the tariff-resilient names in favour of the most at-risk names, you may stand to pay a bit of a premium as you rotate in this phase of what could be a stretched-out back-and-forth trade war. In any case, for the retirees who’ve taken on more risk than they can handle, it’s never too late to check in on some of the less-loved defensive dividend payers.
In this piece, we’ll have a look at one that may be worth picking up as Trump’s on-and-off tariffs rattle markets throughout the year. And while it’s best not to overreact to tariff news on any given day, I do think that any new purchases should be in corners of the market that don’t stand to be nearly as rattled. Indeed, enduring volatility is the price you pay as a stock investor.
Though there are smoother routes to building wealth, none of them, in my view, are as effective as equities. As such, even risk-averse retirees should maintain their equity exposure and consider adding to it on weakness, as others flock to bonds, gold, and guaranteed investment certificates (GICs).
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Hydro One
Hydro One (TSX:H) is a terrific low-beta stock for retirees who are looking to reduce the choppiness of their stock portfolios. With a virtual monopoly over Ontario’s transmission lines, you’re getting a steady utility with one of the most predictable cash flow streams out there.
ith a long-term growth plan that can power high-single-digit earnings growth, investors seeking certainly may wish to buy, even here at all-time highs. The beta sits at a low 0.35, while the dividend yield hovers around 2.6%. Sure, the dividend yield is low compared to its peers and historical averages. Still, if you seek relative stability in a highly uncertain market, that’s the going price after the stock surged close to 19% in the past year.
The only potential yellow flag with H shares has to be the valuation. If you’re buying in the face of rising macro unknowns, you can expect to pay a bit of a premium for such a premier defensive. At 25.25 times trailing price to earnings (P/E), the name trades for quite a premium. Though it’d be prudent to wait for a pullback, I’m not so sure one will hit as tariffs cause a rotation to defensives.
In any case, I’d not be against initiating a starter position here. Just be ready to add on any dips should a pullback off recent highs be right up ahead. Despite the low beta and highly predictable growth profile, H stock is not immune from corrections. In fact, the stock only recently recovered from a nearly 11% September-December drawdown.
Time will tell if the January lows of $42 and change will be revisited. Perhaps a no-tariff scenario could see the stock slip again as investors return to risk-taking mode. Either way, H stock is a name to watch if you seek relative stability with a name that can act as a steady rock for your portfolio when the market winds really get vicious.
