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Canadian Dividend Stocks: The Safest Bet For January 2022

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It’s no understatement when we say it’s been a turbulent year for the global economy. Despite unprecedented efforts by governments and central banks, the pace of recovery for the global community has been glacial, to say the least. 

Fortunately for Canadian investors, the Canadian stock market is far from the worst-hit among global markets.

Given the widespread bearish sentiment and looming systemic risks caused by the pandemic, it’s fair to say that Canada’s S&P/TSX Composite Index has been one of the best-performing major market indices in the developed world.

The TSX recorded a 19.33% gain in the last year alone, edging out other heavy hitters like the Dow Jones Industrial Average and the Russell 2000 Index. 

While some indicators indicate that Canada’s rally will continue into 2022, analysts have raised concerns over ongoing supply-side constraints, rising inflation fears, and heightened geopolitical risks.

To make matters worse, the recent wave of volatility sparked by the arrival of the Omicron COVID-19 variant has given investors a taste of the potential long-run impacts the pandemic could continue to have in 2022 and beyond.

Thanks to the gloomy market outlook, investors are increasingly turning to Canadian dividend stocks to safeguard their portfolios moving into January 2022.

Canadian dividend stocks

Why Dividend Stocks?

To briefly recap, a dividend stock is a publicly-traded stock that is expected to pay out regular dividends to shareholders.

While the returns on your underlying capital will typically be less than more growth-focused assets, these stocks offer greater preservation of capital and attractive risk-adjusted returns.

During periods of market uncertainty, a reliable dividend payout can act as a buffer against losses and help to minimize portfolio volatility.

When looking for stocks that consistently pay dividends, the most important thing to remember is profitability. In order to distribute a stable and consistent income stream to shareholders, a company must have strong cash flow and positive earnings.

For instance, the bulk of Canada’s best-performing dividend stocks are typically found in high-profit industries like the energy sector and financial services industry.

Canadian dividend stocks

Why Investors Are Apprehensive for January 2022

It’s fair to say that investors are still reeling from the pandemic-induced turmoil that engulfed markets through 2020 and 2021.

To give you an idea of how things stand, we’ve outlined three major risks to the Canadian stock market going into early 2022. 

1. Inflation Fears

In an attempt to cushion the economic fallout following the COVID-19 pandemic, many of the world’s central banks, including the Bank of Canada, have instituted extraordinary monetary policy measures to stimulate flagging domestic industries and keep money moving through the economy.

In particular, central banks have employed quantitative easing to buy up government bonds on the secondary market, boosting the global cash supply by trillions of dollars.

Somewhat unsurprisingly, the ballooning money supply has had a significant impact on inflation rates.

If the Bank of Canada continues to extend its liquidity injection program, analysts fear the central bank will struggle to keep inflation within their 1-3% control range.

canadian dividend stocks

2. Supply Chain Disruptions

Ongoing pandemic-induced delays in the global supply chain continue to have major downstream effects for Canadian businesses and consumers.

Some of the country’s largest industries are now seeing demand outstrip supply. In particular, Canada’s automotive sector has been struggling to meet manufacturing demand for vehicles due to low demand from consumers.

Similarly, oversupply in oil markets threatens to trigger a new wave of price volatility in Canada’s commodity and energy markets.

With major bottlenecks in the global supply chain expected to persist through early 2022, savvy Canadian investors are pivoting away from the capital growth market and towards safe haven, dividend-focused industries.

Canadian dividend stocks

3. Pandemic Uncertainty

Last but certainly not least, Canadian investors are increasingly realizing that the economic upheaval caused by the pandemic might be here to stay, at least for the short term.

The prolonged economic uncertainty, combined with an uneven global recovery, has resulted in a massive loss of confidence in the Canadian stock market.

With the Omicron variant already spooking markets, investors are rightfully concerned that future variants will continue to undermine the stability of domestic and international markets through the first half of 2022.

This fear has been compounded by uncertainty surrounding the long-term efficacy of vaccines as a panacea against new, increasingly mutated strains of the virus.

Canadian Dividend Stocks: The Bottom Line

In the end, it’s difficult to predict what the exact shape of the Canadian stock market will be come January 2022.

However, it’s abundantly clear that investor confidence remains fragile.

With a large swath of global markets still struggling to recover from the pandemic, Canadian investors should be prepared to continue diversifying out of the capital growth market and into defensive, dividend-rewarding sectors. 

Ultimately, with inflation chipping away at saving deposits and the threat of further pandemic-induced volatility in the capital growth market, Canadian dividend stocks are the safest option for investors in early 2022.


Jessica is a published author and copywriter specializing in personal and investment finance. Her expertise is in financial product reviews and stock market education.