In times of market turbulence, when headlines about tariffs and global economic uncertainty dominate investor sentiment, shielding your portfolio from sharp declines is a smart strategy. One of the most effective ways to navigate such volatility is by turning to fundamentally strong defensive stocks—companies whose products and services remain essential regardless of economic conditions.
Sectors like consumer staples and utilities are top examples of defensive bets. These companies offer goods and services people consistently need, such as groceries, household products, and electricity. Because demand for these essentials remains relatively stable even during economic downturns, companies in these sectors tend to deliver steady revenues and maintain resilient stock prices. This makes them attractive havens when broader markets experience turbulence.
For Canadian investors looking to protect their capital, here is the smartest defensive TSX stock to buy with $3,300 right now.
Smartest defensive stock
The TSX has several high-quality defensive stocks, such as Loblaw in the consumer space and Fortis in the utility sector. However, if you’re searching for a stock that combines stability with solid growth potential and reliable dividends, Hydro One (TSX:H) stands out as the smartest defensive stock.
Hydro One is a leading electricity transmission and distribution company with a dominant presence in Ontario. Unlike many utilities exposed to the ups and downs of commodity prices, Hydro One focuses on power transmission and distribution. This insulates its operations from the volatility of energy markets, ensuring more predictable earnings.
Adding to its appeal, Hydro One operates in a rate-regulated environment. This regulatory framework provides visibility into future revenues and cash flows, enabling it to generate low-risk earnings regardless of broader market fluctuations.
Despite being a defensive stock, Hydro One has delivered impressive returns. So far this year, its stock price is up over 16%, and over the past five years, it has surged by more than 134%. That translates to an impressive compound annual growth rate (CAGR) of 18.5%, outpacing the broader TSX Index.
Moreover, the company has been consistently rewarding its shareholders with growing dividends. Over the last eight years, Hydro One has increased its dividend by a CAGR of at least 5%, reflecting its commitment to returning capital to investors while maintaining a sustainable payout ratio.
Its defensive business, regular dividend payouts, and solid growth prospects make it a compelling investment in all market scenarios.
Hydro One to outperform the TSX
Looking ahead, Hydro One’s growth story is far from over. The company has a strong balance sheet, which positions it well to capitalize on opportunities ahead. Importantly, it doesn’t need to raise external equity to fund its planned growth initiatives. Its organic growth strategy is well-supported by internally generated cash flows and a growing rate base.
Hydro One expects its rate base to expand at a CAGR of 6% through 2027. This growth is projected to translate into annual earnings increases of 6–8% over the same period. Naturally, this earnings growth supports further dividend hikes, with management targeting an annual growth of about 6%.
Moreover, structural trends like the electrification of commercial buildings and vehicles, population growth, and the rising demand for data centres are set to drive electricity consumption higher. Hydro One’s infrastructure is well-positioned to benefit from these macroeconomic tailwinds in the long term.
Currently, Hydro One pays an annualized dividend of $1.3324 per share. It aims to maintain a payout ratio between 70% and 80% of earnings. Hydro One has ample room to continue increasing its dividend with its expanding rate base, ongoing operational efficiencies, and solid growth potential.
Hydro One is a smart choice for investors seeking a reliable, long-term holding with consistent dividends and capital appreciation potential that could continue to outperform the TSX in the years ahead and provide stability.
