I’ve long viewed investing in dividend stocks as one of the best ways for long-term investors to gain added portfolio protection (or defensiveness). Such an investing strategy can really pay off in difficult markets or declining interest rate environments. As investors look for yield-producing assets, or companies with rock-solid balance sheets and the ability to pay dividends, these stocks can outperform those in the broader market.
In my opinion, dividend stocks and those considered more value-conscious may be the better performers in the years to come. Valuations have gotten to levels where even the most aggressive growth investors are getting uncomfortable. I think this is a trend that’s only likely to accelerate moving forward.
For those with such a view, here are three top defensive dividend stocks I think investors should consider right now.
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Scotiabank
Bank of Nova Scotia (TSX:BNS) is among Canada’s largest banks, which, in and of itself, is why many investors consider this company a top potential holding.
As the chart above shows, Scotiabank stock has taken a significant turn higher in recent months, as investors looking for exposure to financial stocks increasingly turn to Canada as a core market to consider.
Such a move makes sense, considering the stability of the banking system (referenced by the performance of Canadian bank stocks during the GFC and other crises). But with strong fundamentals, a robust balance sheet, and a 4.7% dividend yield, there’s a lot to like about the company’s long-term total return potential for investors looking to put capital to work today.
Enbridge
Top energy infrastructure giant Enbridge (TSX:ENB) is among the most defensive stocks in the market for a number of reasons.
With one of the most expansive and impressive networks of oil and gas pipelines in North America, Enbridge’s role in the energy independence discussion is pivotal. The high-yielding stock, which currently provides investors with a 5.6% dividend yield, is one of the preeminent options for those seeking relatively high up-front yields.
But I’d argue that Enbridge’s cash flow growth profile and historical dividend increase schedule are just as important to the overall discussion, and could drive even more impressive returns over the long haul for investors seeking portfolio stability.
With most of the company’s revenue locked into long-term contracts, investors can sleep easily at night holding Enbridge stock. Personally, I think that’s worth a lot in this current environment.
Hydro One
I’ve long been bullish on the utilities sector as a place for truly long-term investors to hang out and collect meaningful total returns over the long haul. For those in Hydro One (TSX:H), it’s been a relatively smooth ride higher, at least over the course of the past five years.
The utility giant has seen its share price more than double over the past five years, with investors benefiting from rising rate schedules at a rate that’s outpaced inflation. For those looking for stocks that can provide meaningful inflation hedges, Hydro One certainly looks like an intriguing pick here.
Combined with a strong growth outlook driven by rising electricity demand expected in the decades to come (thanks to AI, electrification, and other trends), I think Hydro One is uniquely poised to benefit from these trends. And with some of the lowest-cost power in North America, there’s a lot to like about this company’s pricing power potential over time to meet surging demand from other markets.
Currently providing a 2.6% dividend yield, Hydro One could be among the safest and most defensive dividend stocks in the market right now, in my view.
