These 2 Defensive Stocks = Market Crash Protection in 2020

Combining the Loblaw stock and Choice Properties stock in a portfolio is a defensive posture. Investors are not only protected from a market crash but would receive constant dividends, regardless of economic conditions.

| More on:
Arrow descending on a graph

Image source: Getty Images.

Investors seeking capital protection during economic downturns or fear of a market crash are increasing exposure to defensive stocks. Besides the preservation of capital, you will receive stable earnings from regular dividend payments.

Adding Loblaw (TSX:L) and Choice Properties (TSX:CHP.UN) to your portfolio is the “sleep-well-at-night” formula. The companies tend to perform better than the general market during recessions because both are non-cyclical stocks. There’s no high correlation with business cycles.

Largest retailer

Loblaw, Canada’s largest food and pharmacy retailer, is the prime example of a defensive stock. It has built a network of corporate and autonomously operated stores in various communities across the country.

Notably, the vast majority (about 90%) of Loblaw stores or pharmacies are within 10 kilometres of the communities it serves. With five independent divisions in close distance, customers can troop to Loblaw to purchase items for everyday needs. As such, operations and sales are all year round.

The advantage Loblaw has is the value spectrum it offers to customers. You can go to a discount or specialty grocery stores and full-service pharmacies. This $25.7 billion retailer extends financial services too.

Loblaw can be a stock to hold for the long term. It has a foothold in the Canadian market, where the company can leverage its existing network to promote and strengthen its strong grocery e-commerce presence.

Perfect tandem

You can form a tandem of defensive stocks by investing in Choice Properties. This $4.57 billion real estate investment trust (REIT) leases out mostly retail and commercial properties to well-established tenants. The rental payments are dependable and stable primarily since the anchor tenant is Loblaw.

The partnership of Choice Properties with the top retailer goes way back. You can say that this REIT is one of the quality real estate stocks because of its long-standing association with Loblaw. Its properties are strategically located and have high visibility and high traffic, which help Loblaw maintain a dominating presence.

However, Choice Properties owns a large and diversified commercial property portfolio. This REIT picks locations with expansion and future development potentials. Currently, there are 726 properties in the portfolio, with retail comprising 79%, followed by industrial properties with 15%. Development, office, and residential properties round up the remaining 16%.

Defensive appeal

The defensive nature of stocks like Loblaw and Choice Properties appeal the most to risk-averse investors. Potential earnings from the shares are attractive as well. Loblaw yields 1.79%, while its REIT partner offers a 5.04% dividend. On equal capital allocation, you would realize an average dividend payout of 3.4%.

In a weakening market condition, expect Loblaw and Choice Properties to hold up. Both cash flows and operations should remain strong amid a turbulent economy. Time and again, investment managers migrate to defensive stocks that are moderately immune to changes in the economic environment.

You can do the same in anticipation of market behaviour that is harder than usual. There are other defensive stocks you can consider in 2020. But in my view, Loblaw and Choice Properties are tops on the list for no other reason. I want to sleep well at night.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

More on Dividend Stocks

edit Safety First illustration
Dividend Stocks

How to Generate Inflation-Proof Passive Income

Inflation-resistant, passive-income stocks like Enbridge (TSX:ENB)(NYSE:ENB) should be on your list.

Read more »

Increasing yield
Dividend Stocks

Dividend Chasers: 3 Stocks With Yields of 8% or More

Three TSX stocks are appetizing for investors whose strategy is to chase after dividend beasts.

Read more »

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance
Dividend Stocks

Become a Laidback Landlord Easily With Canadian REITs

Do you want to continue earning rental income but reduce your workload? You should dig deeper into REIT investing!

Read more »

data analyze research
Dividend Stocks

Stocks for Beginners: 3 Reliable Dividend Stocks to Buy Now

The best time to start investing is in a market correction. If you are a new investor, here are three…

Read more »

funds, money, nest egg
Dividend Stocks

Canadian Retirees: 2 Top TFSA Stocks for Tax-Free and Passive Retirement Income

Invest in these two top stocks to enjoy high-yielding, tax-free dividend income in your TFSA amid the market pullback.

Read more »

financial freedom sign
Dividend Stocks

Generate Enough Passive Income to Retire

Looking to generate a stream of passive income to retire on? Here are several stocks to start building out your…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Stocks to Hold for a Reliable Source of Passive Income

Are you looking for a way to produce a reliable source of passive income? Hold these three stocks!

Read more »

worry concern
Dividend Stocks

3 Stocks to Buy if You Are Worried About a Recession

There are a lot of safe investments that can help your portfolio remain afloat during a recession and the market…

Read more »