4 Best Recession Proof Canadian Stocks to Buy and Hold in 2022

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Canada could be ripe for a recession and finding recession proof Canadian stocks can be tough. Rising interest rates, a pandemic that refuses to go away, a war that seems like it will go on for a few more months, and rising inflation (6.7% in March, the highest since 1991) have combined to create the perfect storm for a recession. Stock markets usually price future events into current scenarios. A recession means growth stocks will find it harder to maintain their growth rate and it makes sense for investors to look at stocks which will survive a hard time. Further down this article, we will look at the best recession proof Canadian stocks to watch in 2022.   

This Finder survey says that 59% of economists believe that Canada is heading for a recession “sometime in 2023 or first half of 2024”. One expert says that Canada will likely have a normal summer as COVID restrictions lift but there is another variant expected in the fall which will be the precursor for the recession.

Here are the best 4 recession proof Canadian stocks that we think will weather the recession better than most:

4 Best Recession Proof Canadian Stocks to Buy and Hold in 2022

Algonquin Power and Utilities:

This stock has been a Hashtag Investing favourite. We have written about it here previously. Algonquin is a utility stock. Around 2/3rds of its revenue come from the utility space. These stocks are considered safe and low-risk investments. They won’t have growth spurts but they will also not be volatile which is exactly what you need in a market that could head into a recession. 

The company reported its numbers for Q1 2022 and, as usual, they didn’t disappoint. Revenue came in at $735.7 million, up 16% compared to Q1 2021. Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Ammortization) came in at $330.6 million, up 17% compared to Q1 2021. Adjusted net earnings came in at $141.3 million, up 13% compared to Q1 2021. 

The company is also an emerging player in green energy. Renewables are the future of energy and Algonquin in one of the best in this space. The company also announced an increase of 6% in its dividend payout. Its forward dividend yield is an impressive 5.13%. It closed May 13 at $14.1 and analysts have a target of $17.43 for the stock which is a potential upside of over 23%. It’s a safe stock and definitely one of the best recession proof Canadian stocks to watch in 2022.

Emera:

This is the second utility stock on the list. The stock has been stable this year-to-date even as growth stocks and the broader markets have fallen. The stock closed May 13 at $61.66, a little over its January 3 closing price of $60.96. Emera reported its numbers for Q1 2022. It said, “Q1 2022 reported net income was $362 million, or $1.38 per common share, compared with net income of $273 million, or $1.08 per common share, in Q1 2021.”

The stock has a solid dividend yield of 4.3%. The company has said that it will continue to grow its dividend between 4-5% every year for the next few years. Emera has already committed to a capital investment plan which will expand its base rate. 

Its beta is just 0.27 which means as the markets get more volatile over the coming months, Emera will probably be one of the stabler stocks in the market with a healthy dividend.

Slate Grocery REIT:

When the recession strikes, it helps to know how a potential investment is going to make money. Basically, you want to know if revenues are assured. Slate Grocery REIT could be the answer to this question. The company is an owner-and-operator of grocery stores in the US. Around 97% of its revenues come from secured leases.

The company reported its numbers for Q1 2022. Apart from the secured leases number, below are the highlights:

  • All anchor spaces remain fully occupied and total occupancy is stable at 93.2%.
  • The REIT’s debt profile mitigates near-term rising interest rate risk as 95% of the REIT’s debt is fixed.
  • “The REIT’s basis of $145 per square foot (“PSF”) remains highly defensive, providing a 47% discount to the average cost for a new build of $275 PSF and increasing.
  • Adjusted funds from operations (AFFO) per unit for the first quarter was $0.22, which represents a $0.03 increase from the comparative period in the prior year.

CEO Blair Welch said, “Our team’s strong operational performance has ensured that our portfolio is well positioned to continue providing long-term, stable income, and we remain focused on organic growth and accretive investment opportunities to create value for our unitholders.”

Apart from utilities and healthcare, grocery is a recession-proof sector. The REIT pays out a massive dividend of 7.78% and there is no reason why the number should go down in any economic condition.

Bank of Montreal:

A bank on this list of “Best Recession Proof Canadian Stocks to Watch in 2022?” Yes. Bank of Montreal is one of the best run banks in the country. In 2021, it acquired Bank of the West which gave it access to three of the top five US markets.

Like most stocks, this stock has also fallen in 2022. However, it has just lost 6.42% to date. Bank of Montreal is one of the Big Five of Canadian banking stocks, and we think this is one of the best placed stocks to handle a slowdown. It has solid exposure to the oil and gas space. With commodity prices showing no signs of cooling down in the near future, this stock is likely to benefit greatly.

The stock closed May 13 at $132.01. The average analyst price target for the stock is $164.2, an upside of almost 25%. The stock also pays out a dividend yield of 4.09%. Bank of Montreal is an easy buy.

 

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