Many stocks have been depressed in a rising interest rate environment since 2022. Stocks are high-risk investments, but in a market of stocks, some stocks have been more defensive or resilient than others. Here are a few defensive dividend stocks worth a closer look today for low-risk investors.
As a regulated electric and gas utility that primarily has essential transmission and distribution assets, Fortis (TSX:FTS) stock is able to make reliable returns on its assets through economic cycles. The Canadian Dividend Aristocrat has a strong history of dividend payments to prove this. So far, it has increased its dividend for 49 consecutive years. For your reference, its 10-year dividend-growth rate is 6.1%.
Since utilities are capital-intensive businesses and have meaningful debt on their balance sheets, higher interest rates have weighed on the stock. As well, higher interest rates have made investments less attractive. That said, through 2027, management still foresees healthy dividend growth of 4-6% per year, supported by a capital plan of $22.3 billion.
Fortis is a defensive stock with below-market beta. So, it’s expected to experience lower volatility than the market. At $53.75 per share, the stock has dipped about 11% from its peak in May. And it now offers a decent dividend yield of 4.2%. If we were to see a dividend hike of 5% at the end of next month, investors would be looking at a forward dividend yield of 4.4%. Assuming no valuation expansion, investors can expect medium-term total returns of more or less 9% per year.
Royal Bank of Canada (TSX:RY) stock has below-market beta and tends to be more resilient than its peers thanks to its diversified business. For instance, other than its core personal and commercial banking operations, it also has a sizeable wealth management business that generates about 30% of its total revenue.
The stock is only about 2% lower from 12 months ago. In comparison, the worst-performing big Canadian bank stocks are down about 14-15%. At $122.66 per share, RBC stock offers a safe dividend yield of 4.4%.
Low-risk investors with long-term capital can consider buying the blue-chip stock on any weakness. As we expect a recession by 2024, investors might discover more buy-the-dip opportunities ahead. Assuming no valuation expansion, investors could get total returns of approximately 10% per year over the next five years.
Sun Life Financial stock
Sun Life Financial (TSX:SLF) stock has market beta. However, the life and health insurance stock has a lower beta, a stronger stock price momentum, and trades at a premium valuation compared to its peer, Manulife. So, SLF stock would be a more defensive holding for low-risk investors.
Year to date, Sun Life’s net income diversification includes 41% in wealth and asset management, 32% in group insurance, and 27% in individual insurance. At $65.16 per share, Sun Life stock trades at about 10.3 times earnings and offers a solid dividend yield of 4.6%. Analysts believe it trades at a discount of about 12%.
As a tip, investors looking to invest long-term capital in low-risk dividend stocks should consider ones that don’t have the highest dividend yields in the industry.
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* Returns as of 8/16/23
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