With the pandemic recovery still in its early stages, hints of inflation are taking stocks on a volatile ride. Amid this volatility, the search for defensiveness is ramping up once again for many investors.
Those seeking defensive gems have come to the right place. Here are three options I think provide the perfect defensive posture for investors today.
There’s perhaps no more defensive investment in today’s market than gold. It’s not glamorous, but it has worked as a market hedge in the past. And gold miners like Barrick Gold (TSX:ABX)(NYSE:GOLD) continue to be one of the best ways to gain leverage to gold.
Barrick’s recently reported earnings numbers highlight the benefit rising gold prices has had on the producer. The company booked free cash flow of US$800 million in Q1 2021. Net earnings increased to US$500 million, and quarterly revenue came in at US$1.3 billion. Barrick has reduced its debt substantially of late, freeing up cash flow to return more value to shareholders. Special payments are expected to come in around US$750 million this year, amounting to an extra $0.42 per share. Combining both the regular and special dividends, investors get a total annualized yield of 3.4%.
That’s not bad, especially for a gold miner.
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The retail space is one many believe is poised for continued long-term growth. Additionally, grocery retail is one of those sectors that has held up much better than others during the recent plunge a little more than a year ago.
Accordingly, Metro (TSX:MRU) is another defensive gem in my list of my top picks. The company is innovating in its e-commerce space, delivering year-over-year growth of 240%. That’s pretty decent for an old-world company many investors may brush off as too slow a grower to consider right now.
The main components of Metro’s business, grocery and pharmaceutical retail, saw revenue growth of more than 5% this past year. That’s certainly not bad. Metro continues to be one of the best retail performers in this regard and has a rather large moat in the Canadian grocery retail space.
The company’s healthy margins provided 13% normalized EBITDA growth. Additionally, this stock is trading at a favourable valuation multiple relative to its peers, with a small but meaningful dividend.
The nature of Enbridge’s business model makes the company inherently defensive. With long-term capacity contracts locked in, Enbridge benefits from lower exposure to commodity prices than most energy companies. For those concerned about volatility in commodities on the horizon, that’s a great thing.
Enbridge’s track record of dividend increases is also quite impressive. The pipeline player has increased its dividend for 25 years in a row. Currently, Enbridge offers a yield of roughly 7%, making this one of the best-quality, high-yield plays in the market today.
The company’s cash flow growth provides ample liquidity to fund long-term growth projects. Along with a dividend-growth cut, Enbridge should be able to fund its operations internally, while still delivering dividend growth to investors. This mix is difficult to find today on the market and makes Enbridge a top defensive pick of mine.
Like these top picks? Here are a few more to consider right now:
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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 Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.