14 Best Defensive Stocks in Canada: Protect Your Portfolio (2022)

“No risk, no reward.” That’s the first lesson every investor and trader should learn. Even the broad market ETFs that follow indexes like TSX and NASDAQ are not entirely impervious to market crashes and recessions.

Still, a lot of safety lies in the best defensive stocks in Canada. Even if you are completely untrusting of the market and stocks, defensive stocks can be infinitely better than cash and bonds.

And they also hold value for investors with massive risk appetites.

Best Defensive Stocks In Canada

What Are Defensive Stocks?

The most widely accepted definition of defensive stocks is that they offer consistent earnings and dividends, whatever the market conditions are.

Simply put, these are businesses that provide services and products whose demand remains constant, regardless of whether the market is soaring or crashing, like utilities and consumer staples.

However, the reality is a little more complex than that. We frequently see stocks incoherent with their financial realities.

And the fact that the earning reports are usually three months apart also leaves more room for speculation-driven market dynamics.

However, since perception wins at the game of speculation, the image of the defensive stocks allows them to absorb market conditions better than other, more volatile businesses, as investors don’t let go of them quite as easily.

Defensive stocks have different traits.

  • They don’t dip too much when the market crashes or recover sooner than the broader market.
  • Their earnings remain relatively consistent through financially difficult times.
  • Maintain their dividends regardless of the market conditions, and the payout ratios remain relatively safe.
  • Have evergreen business models

A great example of a systematic approach to the assessment and screening of Canadian defensive stocks can be seen in this video.

These traits usually point you towards stocks that have been in the market for long (at least a decade or so), are large-cap or mid-cap blue-chip companies, are usually dividend aristocrats, and most often leaders within their sectors and industries.

But remember that a defensive stock can be all of the above and still offer paltry return potential.

And if all a defensive stock is good for is capital preservation, how is it better than a bond?

With that in mind, this list of best defensive stocks in Canada also focuses on the return potential of these stocks, and I have excluded some of the top defensive stocks in lieu of their better long-term performing counterparts from the same industry.

Which Stock Sectors Are Defensive?

There is general consensus on three defensive sectors: Utility, consumer staples, and healthcare. But there can be great variation within the sector.

For example, in the Canadian healthcare sector, the marijuana industry dominates, which relies upon discretionary spending (not a defensive asset trait).

On the other hand, segments of the industrial sector, like transportation, may perform well due to evergreen demand.

Gold stocks (from the material sector) often outperform the market during the economic crisis, but they are more contrarian than defensive.

But you may be surprised by what other kinds of stocks (from sectors you might not consider defensive) are widely considered defensive. An amazing example would be McDonald’s.

14 Best Defensive Stocks In Canada

We have chosen defensive stocks in Canada not just based on how they performed during various market crashes in the last two decades and the great recession but also based on their return potential.

The organization is random and doesn’t reflect a particular metric or return potential.

(All the stocks below are listed on the TSX unless otherwise specified. Also, if the ten-year CAGR is mentioned in the stocks below, it’s roughly for the ten-year period between Feb 2012 and Feb 2022.)

1. Alimentation Couche-Tard Stock

Alimentation Couche-Tard Stock

Ticker: ATD
Sector: Consumer Staples
Industry Niche: Food And Staples Convenience Stores
Dividend Aristocrat: Yes

The Quebec-based Alimentation convenience store chain started with one store in Laval in 1980. Now, after about four decades later, the company owns about 14,200 stores in 26 countries and employs over 124,000 people around the globe.

It’s second only to 7-Eleven in the world. The company mostly operates through three prominent brands. It also owns and operates a sizeable network of fuel sites.

The ten-year CAGR of almost 28% puts it among the top growth stocks on the TSX, but the number is highly uncharacteristic of a defensive stock and a bit unrealistic.

However, even if it can grow your capital by 10% a year, that would be better than most stocks that offer a fraction of ATD’s safety and stability.

2. Emera Stock

Emera Stock

Ticker: EMA
Sector: Utilities
Industry Niche: Electric power distribution  
Dividend Aristocrat: Yes

Fortis is usually the first in line as the best utility defensive stock in Canada, and Algonquin is another strong contender, but it’s Emera that sustained the least losses (collectively) in the last few economic crises.

It has a healthy utility business: 2.5 million customers (80% electricity, rest gas) in the US and Canada (over 95% regulated) and over $33 billion in assets.

The company has grown its payouts by about 6% a year in the last two decades, so passive income based on its dividends can easily help you outpace inflation.

The company is rapidly reducing its carbon footprint, so it’s safe for the future as well, and the ten-year CAGR of 10.7% is sustainable and quite decent.

3. Constellation Software Stock

Constellation Software logo

Ticker: CSU
Sector: Tech
Industry Niche: Software solutions   
Dividend Aristocrat: No

While tech is one of the least defensive sectors out there, Constellation’s powerful track record and its monstrous growth potential warrant a place on this list.

In the last two decades, the company never took more than two years to recover from a crash/correction phase, and in the times of most crises, it regained lost valuation within the year.

It has been the most consistent growth stock of the last two decades and offers a millionaire-maker growth pace with the stability of some of the most stable defensive stocks.

The primary business of the company is building and managing software, which it engages in through its subsidiaries (thoroughly vetted and acquired).

It has an impressive global reach (clients in 100 countries).

4. Franco-Nevada Stock

Ticker: FNV
Sector: Materials
Industry Niche: Gold Royalties    
Dividend Aristocrat: Yes

Even though gold stocks are mostly contrarian, Franco-Nevada is different.

It’s a consistent grower (regardless of the market conditions), mostly because it doesn’t directly engage in mining and development business but has royalties in over 300 mining operations, the bulk of which are in Latin America.

Franco-Nevada is not your typical defensive stock, but it has shown more resilience than most utility and consumer staple stocks during the past few financial/economic harsh periods.

And even though it plays second fiddle to Agnico Eagle Mines in this regard, Franco-Nevada’s ten-year CAGR of 16% is far superior.

5. BCE Stock

Ticker: BCE
Sector: Telecom
Industry Niche: Wireless Services (including the Internet)     
Dividend Aristocrat: Yes

Telecom is one of the few Canadian sectors there are well-established oligopolies. BCE is typically the largest giant (in terms of market cap) with an incredible presence.

It’s also the most generous dividend stock in the sector, though it lags a bit in growth, especially to Telus. With full 5G penetration still years away, BCE has a lot of scopes to grow yet.

The company has an impressive client base as well. The bulk of its customers are in the wireless business (10.22 million), and the other 8.9 million are high-speed internet, TV, and wired telecom users.

It’s a leader in a safe sector with minimal chance of new players disrupting the market – making it a Trueblood defensive stock.

6. Canadian National Railway Stock

Canadian National Railway Stock

Ticker: CNR
Sector: Industrials  
Industry Niche: Transportation (Railway)      
Dividend Aristocrat: Yes

The railway giant in the country is in the integrated transportation and logistic business. Trains are still one of the most economical ways to move heavy cargo.

CNR’s true strength comes from its railway network (over 20,000 miles long), which connects three North American coasts and serves as a crucial piece of the in-land logistics puzzle in the region.

The company is financially sound, with its business likely to remain in demand for decades.

It’s also a powerful growth stock (ten-year CAGR of 17%), though not a very attractive dividend stock.

7. Thomson Reuters Stock

Thomson Reuters Stock

Ticker: TRI
Sector: Industrials  
Industry Niche: Professional services/Media      
Dividend Aristocrat: Yes

Thomson Reuters can trace its roots back all the way to 1851, where one of the two companies that combined to make Thomson Reuters (Reuters) was born.

It has deep roots in the newspaper business, though now it’s only a fraction of its current business model.

It has evolved to become the “answer” company, a fancy way of saying consultancy.

The company is a trusted provider of complex solutions to a variety of industries, though it makes most of its revenue out of legal, corporate, and tax and accounting consultancy.

It’s a decent growth stock and one of the oldest aristocrats in the country with a powerful capital appreciation potential.

8. Brookfield Asset Management Stock

Brookfield Renewable Partners Stock

Ticker: BAM
Sector: Financials   
Industry Niche: Capital Markets/Asset Management       
Dividend Aristocrat: No

Brookfield Asset Management is a giant. It’s one of the largest companies in the country by market capitalization and has an impressively global reach.

With over $690 billion in assets under management and operations in over 30 countries, Brookfield engages in various businesses, primarily renewable power & transition, infrastructure, and private equity.

It has a lot of fingers in a lot of pies, which both exposes it and solidifies its status as a defensive stock.

The diversified operations and global presence allow it to weather economic headwinds better than most isolated businesses, and it has proven that on multiple occasions. It has a powerful ten-year CAGR of 21.2%.

9. Canadian Apartment Properties REIT Stock

Canadian Apartment Properties REIT Stock

Ticker: CAR.UN
Sector: Real Estate   
Industry Niche: Residential REIT      
Dividend Aristocrat: Yes

As the largest REIT in the country (by market cap) and a massive portfolio of over 67,500 residential suites (that it owns or manages), Canadian Apartment Properties lands a spot on this list by providing the most basic of all human needs shelter.

No matter what the economy is like, people do whatever they can to have a roof over their head, and that’s where an apartment-focused REIT win.

The company usually maintains a healthy occupancy rate, which cuts down overhead costs to a minimum and ensures healthy cash flow, which results in secure dividends.

But the REIT is a better pick for its capital appreciation potential than its dividends.

10. Enbridge Stock

Ticker: ENB
Sector: Energy    
Industry Niche: Energy Transportation/Pipelines        
Dividend Aristocrat: Yes

Energy is another sector usually not highlighted in the defensive stock lists, but if we had to choose one stock from the energy sector, it would be Enbridge.

Not only does it not fall as hard as others when the energy sector is in trouble (thanks to its business model: Pipelines), it has also maintained a reliable and consistent return potential by growing its payouts for over 25 years.

It’s one of the most generous dividend aristocrats currently trading on the TSX and the largest energy company.

And since the post-pandemic market has taught us the need for fossil-fuel energy is not drying up any time soon, Enbridge deals in products that are almost always in demand: Oil and gas.

11. Toronto Dominion Bank Stock

TD Logo

Ticker: TD
Sector: Financials    
Industry Niche: Banking         
Dividend Aristocrat: Yes

The Canadian banking sector is one of the most conservative and stable in the world, and as the second-largest Canadian Bank and the top retail bank in Canada, TD is as safe a financial stock can get.

Like most other Canadian banks, TD survived the great recession without major losses. It has also proven its mettle and stability during several other financial downturns that rocked the TSX as a whole.

The bank has a lot of exposure to the US market and an impressive international presence, which promises better growth avenues than the saturated home market.

It offers stable dividends at a modestly high yield (usually) and grows its payouts by generous margins each year. The growth potential is good and sustainable.

12. Waste Connections Stock

Waste Connections Stock

Ticker: WCN
Sector: Industrials      
Industry Niche: Waste Collection/Solid Waste Management          
Dividend Aristocrat: Yes

While it’s technically an industrial stock, the service it provides makes it more similar to unavoidable utilities than other industrial businesses.

The solid waste management business is almost evergreen, and the recycling end of the business makes it a potent ESG holding as well.

The stock’s safety also comes from its extensive service network: 44 US states and 6 Canadian provinces.

It’s one of the largest waste management companies in the world and one of the top three in North America. It’s also a stable and well-established dividend aristocrat.

However, more investors are attracted by its powerful growth potential, which is uncharacteristically high for a stock that checks so many defensive stock boxes.

13. Metro Stock

metro Stock logo

Ticker: MRU
Sector: Consumer Staples       
Industry Niche: Groceries and Pharmacies           
Dividend Aristocrat: Yes

Any comprehensive list of the best defensive stocks in Canada would be incomplete without Metro.

Even though it has a much smaller network than Alimentation Couche-Tard, its grocery and pharmacy focus makes it even more defensive and resilient in nature.

The company has a portfolio of 950 grocery stores and 650 pharmacies – two things people can’t stop spending money on, no matter how tight their financial situation is.

Metro operates through various banners, though most of its network is local. It’s ingrained in the fabric of most Canadian communities and is a household name.

It offers a decent combination of growth and dividends, leaning more towards the former.

14. OpenText Stock

Open Text Stock

Ticker: OTEX
Sector: Tech        
Industry Niche: Enterprise Information Management Software           
Dividend Aristocrat: Yes

OpenText is a dividend aristocrat, which is a rarity in the tech sector, but that’s not the only endorsement of its “stability.” The numbers are on the side of this reliable growth stock.

It has performed incredibly well in most of the economic crises of the past decade or so, and even though its growth potential is relatively modest compared to the other tech stock on this list, it’s just as (if not more) reliable.

The company is relatively evolving to take advantage of the overlapping technologies.

It has already entirely switched to the cloud, which shows the future-facing thinking of its stakeholders/decision-makers.  

Is McDonald’s A Defensive Stock?

Yes. As the largest fast-food restaurant chain in the world, McDonald’s ticks many of the boxes of a defensive stock, and its performance has endorsed the fact that it’s a defensive stock, time and time again.

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The wrong defensive stock, which, even if they can survive market downturns better than most, might just weigh your portfolio down.

However, if you follow the approach I’ve used to make this list, i.e., choose defensive stocks that also offer excellent return potential, you may have a small but powerful asset pool at your disposal that might actually help you reach your best-case scenario investment goals.

If you want to add another layer of safety to your portfolio, ETFs might be an asset class worth exploring.

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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