After an incredible run-up in 2025, shares may be due for a break intake. Drawdowns are a natural part of markets. They tend to neutralize the market when things get too exuberant.
Dividend stocks are a safe haven from market declines
Market downturns are almost never fun, especially if you are fully invested. But it is impossible to time the next draw. It is therefore wise to remain largely invested. This is especially true if you have a long investment horizon (five years or longer). However, you can build up insurance in your portfolio.
Many dividend stocks are defensive in nature. They may not grow much, but they can provide a stable income. When the market falls, you still collect a dividend. The best dividend stocks tend to increase their dividend rate regularly over time. Like ballast on a ship, it helps offset and balance volatility within your portfolio.
If you want some defense in your portfolio against a potential pullback, here are two stocks I’d buy now.
Fortis: the safest of the safe dividend stocks
Fortis (TSX:FTS) has to be near the top of the list when it comes to defensive dividend stocks. You don’t own Fortis for big capital gains. Over the past five years, growth has only increased by 31%, which equates to a compound annual growth rate (CAGR) of 5.5%.
However, when you add the growing stream of dividends, the yield almost doubles to 60% or a CAGR of 9.7%. It’s a market return. Yet Fortis only has a beta of 0.35. These returns experienced much less volatility than the broader market.
With a market capitalization of $35 billion, Fortis is a major energy supplier in Canada and the United States. It has a five-year plan to grow its rate base 6.5% annually. If executed successfully, this should easily translate into earnings and dividend per share growth of 4 to 6% over that time horizon.
Fortis yields 3.4%. This stock has a record of increasing its dividend for 51 consecutive years. There is a very good chance that this process will continue in the coming years.
First Capital REIT: Essential focus for tough times
First capital REIT (TSX:FCR.UN) is another defensive dividend stock to hold for a market downturn. The stock is up 47% over the past five years, for a CAGR of 8.1%. Throw in distributions and First Capital is up 84% in five years for a CAGR of 13%.
First Capital operates 21.9 million square feet of grocery-anchored retail properties across Canada. If the market falls due to a recession, this is a stock to hold.
More than 70% of tenants provide essential services. The prime locations support an impressive 97% occupancy rate and mid-single digit rental growth.
This dividend stock has a mix of development and land holdings. The country has been steadily selling these off to pay down its debts and improve its balance sheet. The market barely recognizes the value of its surplus assets, so it continues to trade at an attractive discount to its private market value.
First Capital shares currently yield 4.6%. With an improving balance sheet and rising cash flow, First Cap increased its distribution for the first time in recent history. It could be a sign of further distribution growth.
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