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As we transition into April and the start of the second quarter (Happy belated April Fool’s, by the way!), investors may be contemplating whether the strong momentum seen in the market can continue through the spring and summer months. The TSX Index has just concluded an impressive quarter, posting gains of over 6%. For investors seeking stability and income, TSX dividend stocks could be particularly appealing in the current market environment.
Undoubtedly, Canadian investors have been enjoying a prosperous start to 2024. However, for those lacking defensive positions in their portfolios, now might be an opportune time to bolster their TFSA with some of the less glamorous but resilient dividend plays. This strategic move can provide a cushion in case the market experiences a correction later in the year.
Attempting to time the stock market is generally discouraged, especially for novice investors who should focus on long-term investing. Nonetheless, it’s prudent to be prepared for potential volatility ahead.
During a bullish market phase where stock prices seem to climb relentlessly, there's often a temptation to abandon defensive dividend stocks in favor of high-momentum plays, aiming to maximize potential gains. However, as market conditions evolve (inevitably, although the timing is uncertain), defensive dividend plays could emerge as stalwarts, offering stability even as broader indices retreat.
Opting for defensive dividend stocks doesn't imply giving up entirely on non-defensive growth stocks, especially if they remain undervalued relative to their intrinsic worth.
Nevertheless, it can be wise to trim positions in stocks that have experienced substantial gains in the first quarter and redirect some profits into firms offering more stable performance during volatile periods.
Let’s take a closer look at one such stock that presents an attractive opportunity this April: Fortis.
Fortis (TSX: FTS) stock saw modest performance in the first quarter, ending Q1 slightly in the red. Despite this, with a robust 4.42% dividend yield and a modest trailing price-to-earnings (P/E) multiple of 17.2, FTS stands out as a compelling dividend stock, offering stability in the face of potential market volatility. Its low beta of 0.17 suggests it has a low correlation to the TSX Index, further enhancing its defensive characteristics.
The primary appeal of Fortis lies in its predictable cash flow stream and consistently growing dividend. While a 4.4% yield may not seem extravagant in today’s market environment, FTS serves as an attractive low-cost bond proxy for investors seeking defensive plays.
With relatively flat performance (up 7%) over the past five years, FTS stock appears poised for potential upside correction.
In summary, while Fortis stock may not generate significant returns during a bullish market rally, it represents a reliable defensive option for investors seeking steady income. For those prioritizing stability and dividend growth, FTS stock is a hidden gem worth considering.
