Yahoo Finance Worried About Market Volatility? 3 Defensive Stocks for Better Sleep Tonight
Written by Christopher Liew, CFA at The Motley Fool Canada
The bank crisis in the U.S. and the liquidity problem of megabank Credit Suisse in Europe have heightened volatility several notches higher. Investors are on edge and fear a crash when factors like these occur. However, you can take positions in defensive stocks if market volatility worries you.
You can sleep better by owning shares of Emera (TSX:EMA), National Bank of Canada (TSX:NA), and Finning International (TSX:FTT). The utility stock (+7.75%) and bank stock (+5.05%) are up year to date, while the industrial stock (-1.09%) trades at a slight discount. The current turmoil will unlikely affect dividend payouts.
Rate-regulated utilities
Emera operates cost-of-service rate-regulated electric & gas utilities in Canada, the United States, and the Caribbean. Ten regulated companies and two unregulated investments under one umbrella serving 2.5 million customers. If you invest today, the $14.94 billion multinational holding company pays an attractive 5.15% dividend.
The high-quality portfolio provides reliable earnings, cash flow, and dividends. In 2022, adjusted net income and net income attributable to common shareholders climbed 17.5% and 85.3% to $850 million and $945 million versus 2021. Earnings rise or fall based on sales volume and operating expenses.
With a capital-investment plan of $8 to $9 billion, Emera’s rate base would grow by approximately 7-8% through 2025. Furthermore, management’s annual dividend-growth guidance through 2025 is from 4% to 5%.
Defensive positioning
Canadian banks and the country’s financial system are under scrutiny following bank failures abroad. However, industry analysts agree that failure, particularly by the big banks, is extremely low. National Bank trades at $95.84 per share and can surely sustain paying a healthy 3.95% dividend.
The $32.32 billion commercial bank saw its profits slide 5.2% in the first quarter (Q1) of fiscal 2023 to $881 million versus Q1 fiscal 2022 due to higher provision for credit losses (PCL). Its chief executive officer Laurent Ferreira said, “We are maintaining a defensive positioning with a disciplined approach to capital, risk and cost management.”
Ferreira added the underlying credit conditions in Canada remain strong, but NA needs to build additional reserves. Regarding dividends, the Big Six bank has grown them by 9.4% annually since 2013. There should be no problem with increasing the payout consistently every year.
Constructive demand
Finning is the world’s largest Caterpillar dealer, providing parts, services, and performance solutions of the same renowned equipment brand. In 2022, net revenue and net income attributable to shareholders increased 23% and 38% to $8.21 billion and $503 million compared to 2021.
The $4.99 billion company knows the growth rate is slowing due to the uncertain global business environment. However, management will counter it by reinforcing the mid-cycle operating cost and capital model. The favourable commodity prices and strong demand from mining and energy customers should likewise support the constructive demand conditions in Finning’s diverse end markets.
Performance-wise, the stock has rewarded investors with a 170.77% overall return in three years. It translates to a 38.3% compound annual growth rate (CAGR). Finning’s current share price is $33.07, while the dividend offer is a decent 2.79%.
Seek safety
Risk-averse investors will again play defence and seek safety in low-volatility stocks like Emera, National Bank of Canada, and Finning International.
The post Worried About Market Volatility? 3 Defensive Stocks for Better Sleep Tonight appeared first on The Motley Fool Canada.
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Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Emera. The Motley Fool has a disclosure policy.
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