Don’t Be Cute: Buy Stability With These 2 Defensive TSX Stocks

These two TSX stocks are the perfect way to protect any portfolio, especially when you want consistent growth, returns, and dividends.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published December 19, 2024 10:30 am EST

| More on: FNVTRI

Investing in defensive stocks is like building a fortress around your portfolio. These are sturdy, reliable, and built to last through economic storms. For Canadian investors, defensive stocks are an excellent choice because they provide stability and consistent returns, even during downturns. These TSX stocks are the cornerstones of essential sectors like utilities, consumer staples, and healthcare, offering dependable performance regardless of market volatility. Among these, Thomson Reuters (TSX: TRI) and Franco-Nevada (TSX: FNV) stand out as top options, blending resilience with long-term growth potential.

A red umbrella stands higher than a crowd of black umbrellas. — Source: Getty Images

The TSX stocks

Thomson Reuters is a global leader in information services, serving clients in sectors like law, finance, and tax. This diversification ensures the TSX stock isn’t overly dependent on any one revenue stream, making it a prime defensive stock. In its most recent earnings report, TRI posted revenue growth of 8.2% year over year, reaching $7.16 billion over the trailing 12 months. While quarterly earnings saw an 18% dip, this was due to one-off costs, and its operating margin of 23.72% highlights robust profitability. With a beta of 0.39, Thomson Reuters is as steady as they come, offering peace of mind in turbulent markets.

Franco-Nevada, on the other hand, takes a different but equally defensive approach by focusing on royalties and streaming in the precious metals sector. Unlike mining companies, Franco-Nevada doesn’t deal with the operational risks of extracting resources. Instead, it profits from royalty agreements, ensuring it generates income regardless of whether gold prices rise or fall. While its revenue dipped 11.9% year over year in the most recent quarter, this was offset by its strong cash reserves of $1.32 billion. Plus, it has a consistent operating cash flow of $870 million over the trailing 12 months. Franco-Nevada’s low beta of 0.69 makes it a perfect hedge against market volatility.

For Canadian investors, the defensive appeal of these stocks goes beyond their numbers. Canada’s stock market is heavily influenced by cyclical sectors like energy and mining. Defensive stocks like TRI and FNV provide a stable counterweight, ensuring your portfolio isn’t overly exposed to these fluctuations. Moreover, both companies operate globally, adding a layer of diversification that protects against domestic economic challenges.

Looking ahead

The future outlook for these stocks is equally compelling. Thomson Reuters is doubling down on artificial intelligence (AI) and automation to enhance its product offerings, which could drive higher margins and greater efficiency. This focus positions the company for long-term growth in a world increasingly reliant on data-driven decision-making. With a forward dividend yield of 1.27% and a conservative payout ratio of 42.8%, Thomson Reuters has plenty of room to increase dividends as its earnings grow.

Franco-Nevada is also expanding its portfolio, with new royalty and streaming agreements in the pipeline. Its 1.17% dividend yield may seem modest. Yet the TSX stock’s history of consistent dividend growth shows its commitment to rewarding shareholders. Its strong cash position and low debt make it well-equipped to seize opportunities in the precious metals market or weather economic downturns.

But defensive stocks aren’t just about numbers. These are about peace of mind. Knowing your portfolio includes TSX stocks like Thomson Reuters and Franco-Nevada means you can rest easy even when markets are shaky. These firms have proven their ability to adapt and thrive, ensuring they remain profitable regardless of economic conditions.

Bottom line

In a resource-heavy market like Canada’s, owning defensive stocks is especially crucial. These TSX stocks balance out the volatility of sectors like oil and mining, offering steady growth and reliable dividends. Thomson Reuters and Franco-Nevada are perfect examples of why defensive stocks are essential. Both combine stability, growth potential, and consistent returns in a way few other investments can match.

For Canadian investors looking to weather economic uncertainty while building wealth over time, defensive stocks like TRI and FNV are the ultimate solution. The TSX stocks offer the kind of stability that allows you to focus on your long-term goals without worrying about short-term market fluctuations. Whether you’re new to investing or a seasoned pro, adding these stocks to your portfolio is a decision you’re unlikely to regret.