Passive income: 1 defensive dividend stock to own during a recession

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TSX volatility will likely continue over the next few months as investors try to determine if a recession is on the way.

Recession outlook

Persistently high inflation is already forcing households to cut discretionary spending as the cost of basic necessities like food and gasoline take up more of their budget. In order to control inflation, the US Federal Reserve and the Bank of Canada are raising interest rates at a faster pace and in larger proportions than expected. This drives up borrowing costs for businesses and homeowners. The result will be a further reduction in cash flow available for investment or consumption.

Economists are currently predicting a modest economic slowdown due to high employment levels and a resilient consumer. However, if the labor market changes course and households get to the point where they can no longer pay all the bills, the recession could be deeper.

In this scenario, stock prices would likely continue to fall.

Good stocks to buy now

Given the economic uncertainty over the next two years, it makes sense that dividend investors are looking for companies that provide essential services and offer decent dividend growth advice. Communication companies, for example, tend to be attractive choices. They can pass on higher costs to customers in an inflationary environment and have revenue streams with built-in resilience to economic downturns.

Let’s take a look at one of the top dividend-paying stocks on the TSX that looks attractive right now for a passive income-focused TFSA.

Telus

Telus (TSX:T)(NYSE:TU) provides Canadian businesses and households with mobile, Internet, security and television services. Apart from the entertainment component of the offers, these are essential services that individuals and businesses need to navigate their daily lives and business activities.

Telus has a strong balance sheet and is making the necessary investments to ensure its customers continue to have access to the broadband they need across multiple platforms. The company is nearing the end of its transition from copper to fiber and is accelerating the expansion of its 5G mobile network.

Telus also invests in its non-traditional subsidiaries. For example, Telus Health is about to expand significantly further with the purchase of LifeWorks, a digital health service provider for employer-provided health care plans. Telus Agriculture, another up-and-coming company, helps farmers make their businesses more efficient through the use of digital solutions.

Telus typically increases its dividend twice a year and plans to increase the payout by 7-10% per year until 2025. This is a good direction in the current environment. At the time of writing, the stock offers a dividend yield of 4.75%.

The bottom line on the best defensive actions

Telus is not a recession proof stock, but the revenue stream should hold up well during tough economic times and investors can count on management to increase the dividend every year for the foreseeable future.

If you have money to invest in an income-generating portfolio, Telus stocks are worth being on your radar.