3 Defensive Profit Balances for Less Volatility in Market Corrections

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Many stocks are in the red compared to last year with a correction in the market. Investors looking for defensive dividend stocks that are relatively resilient in this downturn in the market can turn their heads to the next stocks.

These dividend stocks have held up better and outperformed the US and Canadian stock markets over the past 12 months, in particular, after accounting for dividends received.

The charts below show price action and total return (including price changes and dividend returns), respectively.

IFC scheme

IFC, TD and CU data by YCharts

First, there Canadian Services (TSX: CU).

Defensive dividends with good returns

Canadian Utilities is a Canadian dividend aristocrat with the longest dividend growth streak in the world TSX. It has increased its profits for nearly half a century.

The stock is trading 3% higher than it was 12 months ago. Given its dividend, it has generated returns of approximately 9.6% over the past year. According to Yahoo Finance, the latest beta is 0.57, which means about 43% less volatility than the market.

The regulated instrument has been a Steady Eddie stock that has ranged between about $32 and $42 a share since 2015. Flexible shares are trading at $36 and change per share at writing. Therefore, conservative investors should wait to see if the utility stock drops another 12% or so before considering a deal.

Currently, defensive dividend stocks are above 4.8%. At about $32 or so, it will yield about 5.5%.

After that, we have sound financial (TSX: IFC).

Another low volatility stock that is resilient to market corrections

Intact Financial is another dividend stock that is resilient to market corrections. The stock has essentially defied gravity by rallying in the long run. In the past 10 years, it has tripled investor money by offering annual returns of around 12.7%.

The stock is trading 6% higher than it was 12 months ago. Including dividends, it has generated returns of approximately 8.3% over the past year. According to Yahoo Finance, its latest beta is 0.67, which means 33% less volatility than the market.

Intact Financial is a leader in the segmented property and casualty insurance markets. Furthermore, it has a track record of outperforming the industry in terms of having a better aggregate ratio of 4.8% in Canada and 1.6% in the United States. Additionally, it delivered an improved performance of 6.4% on adjusted return on equity against the industry. Specifically, Intact Financial’s five-year return on equity is around 12.6%.

The stock yields approximately 2.3% when writing. At $176 and change per share, the defensive dividend stock is reasonably priced. Should it drop in this market correction, conservative investors can consider taking a break.

Last but not least Toronto Dominion Bank (TSX: TD) (NYSE: TD).

Why TD Stock Is A Defensive Dividend Stock

Large Canadian banks such as TD Bank enjoy an oligopolistic environment as they have captured the lion’s share of the banking market in Canada. They are also subject to strict regulation, which oversees the big picture to ensure Canada’s financial system remains stable through economic cycles.

For example, the regulator will restrict shares of major banks, including TD, from increasing their dividends during highly uncertain economic times. Banks’ dividends have been frozen during the recent pandemic and the recent financial crisis.

By all means, TD had the financial position to increase the dividend if the regulatory restriction had not taken effect. On its balance sheet, TD has $67 billion in retained earnings, which could cover about 15 years of earnings. During tough economic times, banks keep making tons of money, even though profits may be lower than the previous year.

TD’s 12-month net net income is approximately $14.9 billion. It’s a good buy now for a return of around 4.1%, but a market correction could provide a more attractive entry point over the coming months – potentially in the low $70-80 range.

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