Thanks to Donald Trump’s tariff wars, we are heading into the fourth major stock market correction in this still-young century.
The first came just a few months after the millennium rolled over, when an inflated tech sector collapsed and dragged down the rest of the market with it. It took Nasdaq more than a decade to retrace its losses.
Next came the great financial crisis of 2007-09, when bank stocks imploded. For a while, the entire global financial system teetered on the edge of a precipice. Canadian banks came through intact, but financial institutions in the U.S. and Europe were bloodied.
After more than a decade of relative quiet, the COVID-19 pandemic blew out of China, hitting the markets five years ago this month. We survived that, too.
If the recent market weakness turns into a major meltdown, it will have been triggered by Mr. Trump’s unnecessary trade war.
Having already lived through three crashes in this century, you’d think investors would be acclimatized to market volatility by now. But, based on the e-mails I’m receiving, many are still uncertain what to do.
It’s a particularly difficult problem for income-oriented investors because falling interest rates are rapidly reducing the yields on safe-haven assets like money market funds, short-term bonds and high interest ETFs.
Here are a few points to consider when choosing equity investments right now.
Safety and stability: Choose companies that are leaders in their sector and have strong balance sheets. They should have the resources to ride out a lengthy market downturn.
Limited tariff exposure: In most cases, it’s clear which companies and sectors are most vulnerable in a trade war. Automobiles and parts, lumber, steel and aluminum, agricultural products and manufactured goods are on the front lines of a tariff standoff.
Sustainable yield with growth potential: Look for stocks with an above average yield that appears to be safe. A history of regular dividend growth is a bonus.
Here are three Canadian stocks from the recommended list of my Income Investor newsletter that meet these criteria. Prices are as of March 17.
Pembina Pipeline Corp.
- Ticker: PPL-T
- Type: Common stock
- Current price: $55.75
- Originally recommended: June 23, 2009, at $14.78
- Annual payout: $2.76
- Yield: 4.9 per cent
- Risk rating: Moderate
- Website: www.pembina.com
Comments: This Calgary-based company owns pipelines that transport hydrocarbon liquids and natural gas products produced in Western Canada. Its pipelines carry half of Alberta’s conventional oil and almost all of B.C.’s oil. It also owns gas gathering and processing facilities and an oil and natural gas liquids infrastructure and logistics business. Its assets are mainly in Canada although it does operate some cross-border pipelines that terminate in Chicago.
The company recently announced record year-end results for 2024. Revenue was $7.4-billion, up 16.6 per cent from 2023. Adjusted EBITDA was $4.4-billion, a year-over-year gain of 15.3 per cent. Earnings were $1.9-billion ($3 per diluted share), a small gain from $1.8-billion ($2.99 a share) in 2023.
In its financial release, the company said it does not expect any material near-term effect from tariffs “given the highly contracted, take-or-pay nature of its business.”
The company has a history of strongly defending its dividend, most recently during the pandemic market retreat.
Action now: Buy.
Emera Inc.
- Ticker: EMA-T
- Type: Common stock
- Current price: $58.84
- Originally recommended: Oct. 8, 2015, at $44.01
- Annual payout: $2.90
- Yield: 4.9 per cent
- Risk: Lower risk
- Website: www.emera.com
Comments: The Halifax-based utility reported fourth quarter and 2024 year-end results in late February.
Quarterly adjusted earnings per share grew 33 per cent to 84 cents compared with 63 cents in the same period of 2023, driven by solid operating performance across all regulated utilities.
Adjusted net income for the full year was $849-million ($2.94 a share), compared with $809-million ($2.96 a share) in 2023. The increase in 2024 adjusted net income was primarily owing to increased earnings across all of Emera’s utilities and increased corporate income-tax recovery.
The company is targeting an average annual adjusted earnings per share growth of 5 per cent to 7 per cent through 2027.
Action now: Buy.
Power Corporation of Canada
- Ticker: POW-T
- Type: Subordinate voting shares
- Current price: $49.53
- Originally recommended: July 29, 2021, at $39.46
- Annual payout: $2.25
- Yield: 4.6 per cent
- Risk: Moderate
- Website: www.powercorporation.com
Comments: Power Corp. of Canada is a diversified holding company with interests in financial services, communications and other business sectors through its wholly owned subsidiary Power Financial. Power Financial is the holding company for the Desmarais family’s financial interests. The company owns 66.8 per cent of Great-West Life, Canada’s second-largest life insurer, as well as 62.1 per cent of asset manager IGM Financial, which owns Investors Group and Mackenzie Investments. Power also owns 14.1 per cent of European conglomerate Groupe Bruxelles Lambert SA (GBL) and 74 per cent of Wealthsimple Financial, an online advisory platform.
Fourth-quarter and year-end results will be released on Wednesday.
For the third quarter of 2024, the company reported net earnings attributable to participating shareholders of $1.81-billion ($2.79 a share), compared with $1.789-billion ($2.69 a share) in 2023. The corporation’s book value per share was $34 as of Sept. 30, 2024, compared with $32.49 at Dec. 31, 2023.
The nature of Power’s business means it has little or no tariff exposure.
The company pays a healthy dividend of $2.25 a year, to yield 4 per cent. Power Corp. usually raises its dividend annually but suspended increases for a time during the pandemic.
Action now: Buy.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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