3 Defensive Stocks to Hold in Case of a Market Correction

On average, the market falls 10% once every year. Which stocks can protect your portfolio from major losses?

| More on:
stock market

Image source: Getty Images

Market downturns aren’t fun to experience. Depending on how aggressive your portfolio is, investors could expect to see major losses when the market corrects. In fact, growth investors may have seen large dips in certain positions over the past couple months. In order to protect their portfolios, some investors will turn to low beta, defensive companies. These positions can help provide stability during periods of high volatility. Which three defensive stocks should you hold in case of a market correction?

This is an excellent stock to hold in any economic condition

When looking for stocks that could provide stability to your portfolio, investors should consider those which operate in industries that aren’t affected by economic slowdowns. For example, regardless of what happens to the economy, society will continue to rely on utility companies to keep everything in operation. As a result, companies like Fortis (TSX:FTS)(NYSE:FTS) are regarded as a solid, recession-proof business.

Fortis provides regulated gas and electric utilities to about 3.4 million customers across Canada, the United States, and the Caribbean. Because of the predictability and reliability of its business, Fortis has been able to build a very impressive dividend growth streak. In fact, the company’s 47 consecutive years of dividend increases rank as the second-longest active dividend growth streak in Canada. If you’re looking for a stock to rely on during market downturns, consider Fortis.

One of the most reliable industries

Canada wouldn’t be the same without the development of the railway networks that spread across the country. Using that revolutionary method of transport, Canada was able to sprawl out from coast to coast. Today, while there are many forms of transport, rail transport still serves as the best method for moving a large number of goods over long distances. Interestingly, the Canadian railway industry is dominated by a duopoly. Of that duopoly, Canadian National Railway (TSX:CNR)(NYSE:CNI) may be the best choice.

Canadian National operates nearly 33,000 kilometres of track across Canada and the United States. In terms of portfolio stability, investors can expect much of that from Canadian National. The stock has a beta of 0.65, indicating that it is much less volatile than the broader market. Canadian National is also a remarkable dividend payer, having increased its dividend distribution for the past 25 years. If you’re interested in a blue-chip company, Canadian National would be a great option.

You can count on this company

One industry that doesn’t get enough attention for its recession-proof characteristics is the waste removal industry. Regardless of what happens to the broader economy, businesses and homes alike will continue to depend on these companies to keep their communities clean. As a result, companies like Waste Connections (TSX:WCN)(NYSE:WCN) should be considered for your portfolio.

Like Canadian National and Fortis, Waste Connections is another Canadian dividend aristocrat. The company has managed to increase its dividend in each of the past 11 years. In addition to that, Waste Connections stock has done an excellent job of appreciation over the past year, gaining 29%. This isn’t a glamourous company by any standard, but there are a lot of positives to like. Waste Connections deserves a good look by all investors.

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 Jed Lloren has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway and FORTIS INC.

More on Dividend Stocks

edit Person using calculator next to charts and graphs
Dividend Stocks

Better Buy: Fortis Stock vs Enbridge

Fortis stock and Enbridge are top dividend stocks on the TSX today. Which stock is better buy for safe dividend…

Read more »

Canadian Dollars
Dividend Stocks

How to Make $1,500 in Passive Income 4 Times a Year

Blue-chip TSX stocks such as Enbridge can enable investors to create game-changing wealth over the long term.

Read more »

Dividend Stocks

TFSA: How to Easily Turn $10,000 Into $500/Year of Passive Income

You don't need to be a stock market expert to turn $10,000 into a $500 of tax-free passive income. Here's…

Read more »

protect, safe, trust
Dividend Stocks

Worried About a Recession? 2 TSX Blue-Chip Stocks to Protect Your Capital

If you fear a recession coming on soon, here are two blue-chip Canadian stocks to add to your portfolio for…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

New TFSA Investors: 2 Top TSX Stock to Create a Self-Directed Retirement Fund

Top TSX dividend stocks are now on sale for new TFSA investors.

Read more »

money while you sleep
Dividend Stocks

Worried About the Market? 2 Dividend Stocks That Let You Sleep at Night

Here's why Restaurant Brands (TSX:QSR) and Enbridge (TSX:ENB) are two top dividend stocks to buy in this uncertain market right…

Read more »

money cash dividends
Dividend Stocks

How 1 Absurdly Cheap Stock Can Generate $100 in Monthly Passive Income

You can generate $100 or more in monthly passive income from one high-yield stock trading at an absurdly cheap price…

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

How I’d Invest $1000 in February to Make Easy Passive Income

Looking to earn some extra passive income in February but don't have much cash? Build an easy portfolio with these…

Read more »