Although we never advocate timing the market here at Stocktrades, we do understand that some people might be realizing now that their portfolios are a bit overexposed to volatile stocks.
In some cases for beginners it can take a couple corrections or potentially even a market crash for them to realize that they have been investing outside of their risk tolerance.
So, we'd like to go over a couple low beta Canadian stocks that can shore up your portfolio in times of uncertainty and market volatility.
A quick introduction to beta for those who are unaware? It is simply the stocks volatility in relation to the market. A stock with a beta of 0.5 can be expected to move 0.5% when the market moves 1%. And a stock with a beta of 3 would be expected to move 3% when the market moves 1%.
When it comes to low beta stocks here in Canada, heck even in North America, Fortis (TSE:FTS) takes the cake. In fact, many have referred to this regulated utility as more of a bond than a stock.
With a beta of 0.05, Fortis shows relatively no correlation to the volatility of the markets overall, and has proven time and time again that it should be a cornerstone in any Canadian's portfolio.
To understand why Fortis is so reliable, you must first understand what exactly a regulated utility is. Fortis is a power supplier, and in order to get the power to customers homes, it needs the infrastructure to do so.
And, in the situation of a regulated utility, Fortis pays for and owns the exclusive rights to that equipment and infrastructure. So the poles, power lines, generation methods, even the meter box. This creates a wide economic moat, as other competitors are unable to enter the space.
Fortis then goes to the municipality and discusses rates that not only guarantee profit for the utility company but a fair price for the customer. As a result, cash flows are reliable and consistent.
This helps the company and reduces the volatility of the stock for a number of reasons. For one, Fortis has been able to grow the dividend for 48 consecutive years, and has rewarded shareholders with outstanding dividend growth.
Secondly, due to this outstanding dividend growth and consistent cash flow, during market turmoil Fortis is one of the last stocks investors think of selling, as it tends to serve its purpose regardless of the markets current conditions.
Overall, this is one of the best companies to own in the country for reliability, and I truly do think every Canadian should have a piece of Fortis in their portfolio. Rising rates might impact this company over the short term, but investors shouldn't be worried. It has weathered that environment before with ease.
Speaking of market corrections, we love looking at defensive stocks that help us get through times of uncertainty. Here are two top Canadian stocks that could be defensive plays.
Empire Company (TSE:EMP.A)
Even if you're a beginner investor just learning how to buy stocks, you probably understand the fact that grocers should be able to drive revenue and earnings growth even in the worst of times. Much like Fortis with its electricity, food is one of the last things we sacrifice when capital gets tight.
One of the best grocers in the country right now is Empire Company (TSE:EMP.A). A subsidiary business, the company operates one of the most popular chains in the country, Sobeys. It operates under brands such as Sobeys, Safeway, IGA, Foodland, FreshCo, Thrifty Foods, Lawton Drug Stores, and more.
The company also has investments and operations inside of Crombie REIT, which is an open ended REIT.
Although Loblaws (TSE:L) has been one of the better performers over the last year, if we span it out to the last 5 years we can clearly see that Empire has been the best performing grocer.
Due to the reliability of its cash flow, the company has one of the longest dividend growth streaks in the country at 26 years. Over the last half decade, it's managed to grow its dividend by about 5.39% annually.
This isn't ground breaking dividend growth, but considering it's done it for a quarter century, a 5% or more increase to the dividend annually should be welcomed. One negative that yield seekers will point out is the fact that Empire only yields 1.58%, hardly enough to satisfy passive income investors.
And while this is somewhat true, this article isn't to target higher yielders. It's to target reliable stocks that could help you in the event of a market downturn. With a beta of only 0.3, Empire is certainly one of those.
The company won't blow you away with growth, but earnings over the next few years are projected to grow by an average of 11% annually with revenue growing in the low single digits. This is to be expected from a blue-chip grocer like Empire, and it's actually one of the higher growth rates in the sector.
The company's brands are favorites across the country when it comes to shopping, and even though it doesn't have the reach and "discount" appeal to it like Loblaws does with its Superstore and No Frills brands, Empire isn't going anywhere anytime soon, and was practically unfazed during the COVID-19 crash.
If you're looking to add a defensive option to your portfolio, this should be one you strongly consider.