Markets can panic over interest rates, inflation, recessions, tariffs, or, as we’ve seen more recently, a post on X.
But amidst all that chaos? People still need groceries.
That doesn’t make consumer staples immune to market declines. Yet it does mean demand can hold up considerably better than it does for businesses selling things consumers can simply postpone. For investors, that kind of predictability becomes useful when the rest of a portfolio is bouncing around.
Add a growing dividend and suddenly boring starts looking way more productive.
Source: Getty Images
Defensive works
An all-weather stock doesn’t need to rise every time the market falls. It needs a business capable of producing cash through different economic conditions. Food and medicine fit that theme perfectly.
Households can delay buying a car or renovating the kitchen. Dinner and prescriptions remain recurring. That can help defensive companies maintain revenue even when consumers become nervous.
I’d still want growth, though. Otherwise, investors are simply paying for stability while inflation slowly eats the furniture. That’s where Loblaw Companies (TSX: L) gets interesting.
L
Loblaw is Canada’s largest retailer, operating more than 2,800 locations across grocery, pharmacy, and healthcare. Its banners include No Frills, Maxi, Real Canadian Superstore, Shoppers Drug Mart, and T&T Supermarket.
Second-quarter retail revenue rose 4.1% year over year to $15.05 billion, while adjusted earnings per share (EPS) climbed 11.9% to $0.66. Cash generation was stronger still. Retail free cash flow reached $856 million, up $235 million from last year. That gives Loblaw plenty of room to keep investing while returning money to shareholders.
What’s more, the current growth plan is getting larger, not smaller. Loblaw now expects to open approximately 75 new grocery stores and pharmacies in 2026, up from about 70 originally planned. It has another roughly $1.2 billion of capital expenditures planned for the rest of the year as part of a broader $10 billion Canadian investment program through 2030. Much of that expansion is going into No Frills and Maxi as shoppers continue hunting for value.
There’s growth outside Canada, too. T&T’s first California location recorded the highest first-week sales of any Loblaw store opening, with two more California stores planned this year. That gives this defensive business considerably more to do than simply wait for the next recession.
Considerations
Loblaw’s quarterly dividend recently increased to $0.155183 per share from $0.141075, an increase of about 10%. At $62.85, the annualized payout of roughly $0.62 produces a yield of around 1%. That won’t impress investors searching for the highest-yielding Canadian dividend stocks. Yet the payout is only one part of the return.
Loblaw also expects to repurchase approximately $2.1 billion of shares during 2026. Fewer shares combined with rising earnings can help increase earnings per share over time, while the dividend keeps growing alongside it. That’s a useful combination for investors building around Canadian blue-chip stocks.
Loblaw’s biggest problem may be its price. At $62.85, the shares trade around 23.5 times forward earnings. That’s a fairly rich valuation for a grocery and pharmacy business, particularly with second-quarter food same-store sales growing only 1.6%. Competition, food-price scrutiny, and weaker consumer spending could also pressure growth.
Bottom line
I wouldn’t buy Loblaw because I expect it to soar during the next market selloff. I’d buy it because Canadians are still likely to need groceries, prescriptions, and value-priced stores regardless of what markets are doing.
With earnings growing, the store network expanding, and the dividend moving higher, Loblaw looks like the kind of stock I’d be comfortable letting work while the rest of the market gets dramatic.
