Volatility has been rising in the equity markets of late. With the US Federal Reserve very close to start tapering its bond-buying program, markets around the world have started bracing themselves for a slowdown. Investors in Canadian markets would do well to start adding defensive stocks to their portfolios.
Defensive stocks are companies that provide stable earnings and regular dividends irrespective of market conditions. They are considered boring when markets are bullish but are safe havens during a market downturn. These Canadian stocks are well-established and have a good track record spanning years, and sometimes decades. Their diversification helps them weather all kinds of storms. Here are 20 companies for you to choose from given that the global economy remains sluggish due to the ongoing pandemic and might be ripe for a pullback.
Telus is a telecommunications company that is capitalizing very well on the rising demand for faster and more reliable internet connections. The company has been aggressively increasing its customer base by offering a range of innovative products, superior connections, and premium bundled offerings. Apart from building a strong and reliable high-speed broadband network, it is also expanding its work on 5G technology. The company’s second-quarter financials showed it is already providing 5G service to 36% Canadians and intends to serve at least 70% of them by the end of this year. Additionally, Telus also pays a handsome dividend currently yielding 4.44%.
Fortis is a Canadian electric utility company operating across the US, Canada, and the Caribbean. The company has a huge customer base and boasts of having about 433,000 retail customers in southeastern Arizona alone. The most positive aspect about this stock that makes it a perfect buy for investors is the fact that it is a profitable company and its profit margin has not fallen below 12% in the past four years. Moreover, the stock is up by 10% year-to-date and has been increasing dividends each year for the last 47 years. Currently, it has a yield of 3.51% which is pretty tasty compared to its peers.
Enbridge is a Canada-based multinational pipeline company that owns massive energy infrastructure assets and transports crude oil and natural gas primarily to the North American region. On seeing the push towards decarbonization, the company is also expanding its investments in developing clean energy sources and has been gradually expanding its presence in this space. Presently, it has $17.4 billion worth of expansion projects to be completed by 2023 and has also invested $2.4 billion on renewable energy projects.
Moreover, Enbridge is a dividend aristocrat and has a dividend yield of 6.79% and it has been consistently increasing its payouts over the last 26 years. While Enbridge is part of the cyclical energy sector, it derives a majority of revenue from long-term contracts making it immune to commodity prices.
Metro is the third-largest food grocer in Canada and operates food stores, supermarkets, and discount stores to provide grocery and other general merchandise products in the areas of Quebec and Ontario. The company has a network of over 950 food stores under brands like Metro Plus, Super C, and Food Basics. It has also been benefiting from the increased demand for e-commerce stores and within the first quarter of this year itself, its online sales rose by a massive 170%. The stock has gained about 10% this year and 6% in the last year and has a decent dividend yield of 1.57%.
Waste Connections is a Canada-based company engaged in the business of collecting, disposing, and recycling wastes and operates across the USA and Canada. The company is quite immune to the changing scenarios in the economy as it runs its operations based on two main strategies. Firstly, its hunger for acquisitions has helped it penetrate even into the lesser-explored rural markets, and secondly, its huge grip in the oil and gas sector has helped it emerge as one of the leading waste management players. The stock gained about 25% in the last year and is up by more than 25% year-to-date.
Rogers Communication is a Canada-based communications and media company that operates in areas like wireless communications, cable television, the internet, etc. The company has used its assets smartly and has recovered quite a lot after the pandemic.
Rogers Communication focuses on providing high-speed connectivity even in the remotest locations and is also working significantly in rolling out its 5G technology. In fact, it is one of the best players in the 5G segment in the current era. Moreover, the sudden spike in demand for stable and faster internet connections has given the company an added advantage. The stock has gained 15% in the past year and 5% year-to-date.
Algonquin Power & Utilities
Algonquin Power is a renewable energy company. It’s a quality defensive stock as 70% of its portfolio consists of essential services like regulated water, natural gas, and electricity utilities and therefore it always has sufficient access to a stable stream of baseline cash flows that prevents it from facing any downside risk. Presently, the company has $9.4 billion projects due for completion within the next five years, and post that its annual earnings might increase at a CAGR of 8%-10%. Additionally, it pays a handsome 4.25% dividend which has grown consistently at a 10-year CAGR of 10%.
Canadian National Railway
Canadian National Railway is one of the biggest players of the railway industry in North America spanning a huge network that connects the Pacific and Atlantic coasts of Canada to the Gulf Coast in the United States. Last year when COVID-19 had taken a toll on all businesses, the company’s shares rose to new heights while this year when the recovery began the company’s shares fell. Still, investors seeking stable growth can consider CNR stock as the company has strong free cash flows. Further, Canadian National Railway has been a dividend aristocrat with a good track record of raising dividends and repurchasing shares.
Empire is Canada’s largest food retailer company that focuses on food retail and corporate investments. The company owns and operates around 1,500 retail stores under a number of brands like Sobeys, Safeway, IGA, and others. In today’s inflationary environment where it is predicted that the price of food products might increase by about 3%-5%, owning such stocks are worth it because the situation is perfect for them to earn greater margins and thereby provide higher returns to the investors. Empire stock has climbed about 17% in the past year and offers a moderate 1.46% in dividend yield.
Alimentation Couche-Tard is a Canada-based multinational convenience store operator. The company owns 15,000 stores under banners like Circle K, Couche-Tard, Holiday, Ingo, and Macs that are spread across multiple regions. It is a highly defensive stock with a pretty low beta that makes it quite safe to invest in times of volatility. The company has reported solid quarterly earnings and aims to double its income within the next five years. Moreover, the piled-up cash in its balance sheet indicates it might be planning to make growth-oriented investments soon. The stock has gained 15% in the past year and 17.5% this year respectively.
Hydro One is an Ontario-based company engaged in electricity transmission and distribution services. It serves around 1.4 million customers using its 30,000 circuit KMs high-voltage transmission lines and 124,000 circuit KMs of primary low-voltage distribution networks. Despite being in a relatively boring business, this one is a highly defensive stock with a comparatively lower beta and has attained steady growth over the years. Hydro One shares are up by 9% this year and are trading at a PE of about 20 times which is reasonable. Moreover, the dividend yield of 3.38% is an added bonus that will come in handy during uncertain times.
Canadian Utilities is a Canada-based multinational network of companies engaged primarily in the power generation and utility business. By continuously investing in the rate-regulated and long-term contracted assets, the company has significantly strengthened its earnings and balance sheet position over the years. Moreover, the stock is a safe investment option as it is capable of providing steady income both in periods of recession and high economic growth. Also, it has been paying dividends consistently for the past 49 years and currently has a handsome dividend yield of 5% that is likely to keep growing with the passage of time.
Premium Brands Holdings
Premium Brands Holdings is Canada’s one of the leading food processing companies engaged in the manufacturing and distribution of specialty food items, primarily in Canada and the United States. The company has had strong financial progress over the years. Since 2016, its revenues have grown at a CAGR of 22% and its recent quarterly report also showed a 26% year-over-year growth in revenues that stood at $1.2 billion. Moreover, it is also actively engaged in making strategic acquisitions that have significantly contributed to its steady growth. The stock has gained more than 30% so far this year and almost 29% in the past six months.
Bank of Nova Scotia
Bank of Nova Scotia is Canada’s third-largest bank in terms of deposits and market capitalization. The multinational banking company has very bright prospects because it has been focusing on diversifying itself in the Pacific Alliance regions that have a population of over 230 million. It has already generated $493 million from such international banking divisions in the Q3 of 2021. The stock has gained around 20% this year and more than 40% in the past year. Additionally, it has a dividend yield of 4.66% which is much higher compared to the average yield of 1.69% provided by its peers.
Canadian Apartment REIT
Canadian Apartment REIT is the largest apartment real estate investment trust in Canada. The REITs total portfolio consists of 63,790 suites and sites and it has been consistently diversifying into rural and smaller markets within Canada. Additionally, it also has a professionally managed platform in Europe which will ensure it continues to expand in the European regions. The company’s revenues overall are stable and as its properties are mostly residential the capital requirement and maintenance costs are also quite low. The stock has gained 28% in the past year and about 23% so far this year and possesses a dividend yield of 2.6%.
TC Energy is a North America-based energy company operating energy infrastructure facilities in the areas of Canada, the United States, and Mexico. The company’s business model is highly defensive and it has access to steady cash flows because the rates on its natural gas pipelines are regulated. Though the cancellation of the Keystone XL project had hampered its profits to some extent, the company was able to consistently maintain a profit margin of a minimum of 23% and sales of $13 billion each year over the past four years. TC Energy stocks are up by 13.5% so far this year and the company also has a high dividend yield of 5.87%.
Linamar Corporation is a Canada-based multinational manufacturing company and is the country’s second-largest manufacturer of automobile parts. The company operates across Canada, North America, Europe, and the Asia Pacific.
After a period of suffering and heavy losses due to the country-wide lockdowns around the world, the stock has made a pretty good rebound this time as the economy started reopening and has recorded a whopping $108 million profit in the second quarter of this year. Moreover, the stock is up by more than 70% compared to last year and in this year till now has grown by 6.3%. Additionally, it also pays decent dividends currently yielding at 0.89%.
Saputo is a Montreal-based dairy company and is one of the top 10 dairy processors in the world. The company deals with a variety of high-quality dairy products including cheese, fluid milk, extended shelf-life milk, and cream products, cultured products, and dairy ingredients. The company did feel the wrath of the pandemic but made out of it pretty well owing to its high resiliency and strong core operations. Moreover, the company is also diversifying its area of operations across multiple regions through several acquisitions and is trying to build a long-term and sustainable growth-oriented future for all its stakeholders.
Manulife is a multinational insurance company based in Canada operating mainly across Asia, Canada, and the United States. It provides health insurance, life insurance, annuity, pension, and related services and is one of the world’s leading insurers. The company got hit hard by the pandemic but as the interest rates are now about to increase due to high inflation rates, the company can make significant gains on its invested premiums. Notably, its wealth and asset management operations have already seen 50% revenue growth last quarter. The Manulife stock is up by 12% year-to-date and 26% from the last year and it also pays great dividends yielding 4.46%.
BCE is a Canadian telecommunication company that provides wireless, wireline, Internet, and television services to Canadians. The company can easily survive any harsh economic conditions because no matter what the situation is people usually don’t discontinue their subscriptions. Moreover, it has been making significant developments in the 5G segment by partnering with Amazon Web Services to provide Wavelength Zones for fast 5G multi-access edge computing. This move can provide its operations a significant boost as a high-speed and reliable internet connection is now highly demanded. The BCE stock has gained about 18% this year and also pays high dividends currently yielding at 5.41%.