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Many stocks are in the red compared to a year ago as a market correction is underway. Investors looking for defensive dividend stocks that are relatively resilient at this market downturn they can turn their heads to the following actions.
These dividend stocks they have outperformed and outperformed the US and Canadian stock markets over the past 12 months, particularly after accounting for dividends received.
The charts below illustrate price action and total return (which includes price changes and dividend yield), respectively.
IFC, TD and CU data by YCharts
First, there is Canadian public services (TSX: CU).
A defensive dividend stock with a good yield
Canadian Utilities is a Canadian dividend aristocrat with the longest dividend growth streak in the TSX. It has increased its dividend for about half a century.
The stock is trading about 3% higher than 12 months ago. Accounting for its dividend, it has generated returns of about 9.6% over the past year. According to Yahoo Finance, its recent beta is 0.57, implying around 43% lower volatility than the market.
The regulated utility has been a Steady Eddie stock that has been range-bound between roughly $32 and $42 per share since 2015. The resilient stock is trading at $36 and trading per share at time of writing. So conservative investors should wait to see if utility stocks will drop another 12% or so before considering a position.
Right now, defensive dividend stocks are yielding above 4.8%. At about $32 or so, it would yield about 5.5%.
Next, we have intact financial (TSX:IFC).
Another low volatility stock resistant to market corrections
Intact Financial is another dividend stock resistant to market corrections. The stock has essentially defied gravity by going up for the long haul. Over the past 10 years, it has tripled investors’ money by generating annualized returns of around 12.7%.
The stock is trading about 6% higher than 12 months ago. Including dividends, it has generated returns of approximately 8.3% over the past year. According to Yahoo Finance, its recent beta is 0.67, which implies a volatility 33% lower than that of the market.
Intact Financial occupies a leadership position in the fragmented property and casualty insurance markets. Additionally, it has a track record of outperforming the industry in terms of having a combined ratio that is better by 4.8% in Canada and 1.6% in the United States. In addition, it has obtained an improved return of 6.4% in its adjusted return on capital against the industry. Specifically, Intact Financial’s five-year return on equity is approximately 12.6%.
The stock yields nearly 2.3% at time of writing. At $176 and exchange per share, the defensive dividend stock is reasonably priced. Should I dive lower in this market correctionconservative investors may consider taking a bite out of it.
Why TD Stocks Are Defensive Dividend Stocks
Large Canadian banks like TD Bank enjoy an oligopoly environment in which they have swallowed up most of Canada’s banking market. They are also under strict regulation, which monitors the big picture to ensure that the Canadian financial system remains stable through business cycles.
For example, the regulator would restrict large bank stocks, including TD, increase their dividends during highly uncertain economic times. Dividend freezes for banks occurred during the recent pandemic and the latest financial crisis.
Of course, TD was in the financial position to increase dividends if the regulatory restriction was not in place. On its balance sheet, TD has $67 billion in retained earnings, which can cover about 15 years of dividends. During tough economic times, banks continue to make tons of money, even though profits may drop from the previous year.
Net income for the past 12 months from TD stock is nearly $14.9 billion. It’s a good buy now for a yield of almost 4.1%, but the market correction may provide an even more attractive entry point in the coming months, potentially in the low $70-80 range.