When markets are volatile, and uncertainty is elevated, many investors look for the most defensive sectors they can invest in to help shore up their portfolios. Investing in defensive sectors is essential during times of turmoil because these industries are less sensitive to economic cycles and tend to generate reliable earnings regardless of the broader environment.
Whether it’s due to geopolitical tensions, inflation, or the potential for rising interest rates, defensive industries can help protect your portfolio while still offering long-term upside potential.
Of course, while no sector is entirely risk-free, defensive ones often provide consistent cash flow, low volatility, and dividend-paying stocks that continue to perform even during downturns.
So, with that in mind, here are three of the most defensive sectors to consider today, along with top stocks in each sector.
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Utilities is one of the best defensive sectors to invest in
If you’re looking for a defensive industry to invest in, there’s no question that one of the very best places to start is the utility sector.
Utility stocks are classic defensive investments because they provide essential services like electricity, water, and natural gas. These are services that people need regardless of how the economy is performing.
Furthermore, utility companies are typically regulated, which ensures relatively stable revenues and cash flows. Because of this, many utility stocks have predictable earnings, which allow them to pay reliable dividends and experience less volatility than the broader market.
There are several high-quality utility stocks on the TSX, but one of the best utility stocks in Canada is Emera (TSX: EMA).
Emera operates across North America and the Caribbean, serving over 2.5 million customers. Furthermore, its operations are highly diversified, which only adds to its reliability and predictable income.
This stability allows the company to offer a reliable dividend, currently yielding 4.9%. Not to mention, Emera also offers dividend growth. In fact, it’s increased its dividend every year for 18 consecutive years now.
So, if you’re looking for defensive sectors to invest in while volatility and uncertainty continue to surge, utility stocks like Emera are some of the best to buy now.
Consumer staple stocks can be highly reliable
In addition to utilities, another highly defensive industry is consumer staples. Consumer staples are companies that sell everyday goods like food, beverages, household items, and hygiene products.
Like utility stocks that provide essential services, staples are goods that consumers continue to buy regardless of economic conditions. As a result, consumer staples stocks often experience steady demand and predictable earnings.
There are a few high-quality consumer staple stocks to choose from in Canada, but one of the best to buy now is Metro (TSX: MRU).
Metro is one of the largest grocery and pharmacy operators in Eastern Canada, with several popular banners, including Metro, Super C, and Jean Coutu.
So, if you’re looking for defensive sectors to invest in, Metro is a top pick due to its stability as well as its consistent free cash flow generation, which allows it to reinvest in growth while also rewarding shareholders.
Essential infrastructure stocks generate significant cash flow
Lastly, infrastructure is another resilient industry to invest in that offers both defensive qualities and long-term growth potential.
These companies operate essential assets such as transportation networks, energy systems, water treatment facilities, and much more. And since these assets are critical to the functioning of modern society, demand remains consistent no matter what the economic environment.
There are many infrastructure stocks to choose from on the TSX. However, one of the very best infrastructure stocks that you can buy now and hold for years to come is Brookfield Infrastructure Partners (TSX: BIP.UN).
Brookfield owns and operates a diverse range of infrastructure assets that are diversified all across the globe. In fact, its portfolio includes assets like utilities, ports, railroads, telecom towers, data centres, and much more.
Furthermore, about 90% of its cash flow is regulated or under long-term contracts, which helps to stabilize revenue and reduce sensitivity to economic cycles. In addition, though, Brookfield is also known for its consistent growth potential and significant dividend, which currently offers a yield of more than 6.1%.
So, not only is infrastructure one of the best defensive sectors to invest in, but Brookfield is also one of the best long-term investments you can make today.
