After increasing by more than 10% last month, the S & P / TSX Composite Index continued its bullish momentum to rise around 2% this month. The vaccine euphoria and better than expected October gross domestic product (GDP) figures continued to boost Canadian equity markets. Meanwhile, the increase in COVID-19 cases around the world and the challenges of the widespread distribution of the vaccine could create headwinds for the markets.
So, amid the uncertain outlook, investors might add the following three safe dividend aristocrats to bolster their portfolios, as dividend paying stocks tend to outperform during an economic downturn.
Fortis (TSX: FTS) (NYSE: FTS) operates a highly regulated utility company serving approximately 3 million customers in Canada, the United States and the Caribbean. It derives 99% of its income from rate-regulated assets, thus insulating its financial services from market fluctuations.
At the same time, the company planned to invest $ 19.6 billion over the next five years to increase its base rate to $ 40.3 billion at an annualized growth rate of 6%. Expanding the rate base could boost its earnings and cash flow, thereby supporting its dividend payouts.
Fortis has rewarded its shareholders by increasing its dividends for 47 years. In September, the company had increased its quarterly dividends 5.8% to $ 0.505 per share. Thus, its dividend yield is currently 3.9%.
Meanwhile, the company’s management plans to increase its dividends at a CAGR of 6% over the next five years. So, given its stable cash flow, solid growth outlook and good dividend yield, I think Fortis would be a great defensive bet in this uncertain outlook.
Algonquin Power & Utilities
Algonquin Power & Utilities (TSX: AQN) (NYSE: AQN) operates a very diverse utility company, serving approximately 1 million customers. It also operates solar and hydroelectric generation facilities with an overall capacity of two gigawatts. At the same time, it is also building additional facilities, increasing its power generation capacity by 1.6 gigawatts.
The company sells 85% of the electricity produced from its assets through long-term contracts, with the weighted average duration of the contracts currently being 13 years.
Algonquin Power & Utilities has had a strong performance over the past few years, with its Adjusted EPS increasing at a CAGR of 13.5% over the past five years, driven by its strong underlying businesses and acquisitions. Meanwhile, the company plans to spend $ 9.4 billion over the next five years, increasing its rate base to a CAGR of 11.2 percent. In addition, the company’s management is hoping that its Adjusted EPS could grow at a CAGR of 8-10% during this period.
Supported by its strong and stable cash flow, Algonquin Power & Utilities has increased its dividends over the past 10 years at a CAGR of 10%. Management also plans to increase its dividends at the same rate for several more years. Currently, the company pays quarterly dividends of $ 0.20 at a dividend yield of 3.8%.
Bank of Nova Scotia
This year the Bank of Nova Scotia (TSX: BNS) (NYSE: BNS) has lost more than 6% of its stock value. The increase in provisions for credit losses weighed on the company’s financial position, lowering its inventory. However, amid improving economic activity, the company reported sequential growth in its late October quarter. Its adjusted EPS rose 39%, while provisions for credit losses rose from $ 2.2 billion to $ 1.1 billion.
With the end of the pandemic in sight amid the roll-out of several vaccines, the Bank of Nova Scotia could experience higher credit growth and lower provisions in 2021, boosting profits. Meanwhile, the company is currently trading at an attractive valuation, with its earnings futures price and multiple of the accounting price at 9.7 and 1, respectively.
The Bank of Nova Scotia has a long tradition of paying dividends. It has increased its dividends by 43 times over the past 45 years. The company currently pays quarterly dividends of $ 0.90 per share at an annualized rate of $ 3.60 and a dividend yield of 5.2%.
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The Motley Fool recommends BANK OF NOVA SCOTIA and FORTIS INC. Contributor Fool Rajiv Nanjapla has no position in any of the stocks mentioned.