The Canadian equity markets have staged a recovery this month, with the benchmark S&P/TSX Composite Index gaining 1.5%. Easing geopolitical tensions, growing hopes of a diplomatic resolution to the Middle East conflict, and declining oil prices have helped ease inflationary concerns and lifted investor sentiment. Following this recent rebound, the index has advanced approximately 14% year-to-date.
Despite this recovery, uncertainty continues to cloud the outlook for global equity markets. Shifting political and trade policies, elevated bond yields, persistent inflation, and ongoing geopolitical tensions could trigger renewed market volatility. In this environment, investors looking to protect their portfolios from potential downturns should consider accumulating defensive stocks. Companies with resilient businesses, stable cash flows, and consistent financial performance can help cushion portfolios against market turbulence. Against this backdrop, let’s explore two defensive Canadian stocks that could provide stability and support long-term portfolio growth.
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Hydro One
Hydro One (TSX: H) is a pure-play electricity transmission and distribution utility with no exposure to power generation. The company serves approximately 1.5 million customers across Ontario through its regulated electricity network. Its regulated business model provides predictable revenue streams and stable cash flows, supporting consistent financial growth. Since 2018, Hydro One has expanded its regulated asset base at an annualized rate of 5.2%, strengthening its long-term earnings potential. Backed by its reliable financial performance, the utility has delivered an impressive total shareholder return of 118% over the last five years, translating into an annualized return of 16.9%. Furthermore, it has increased its dividend payouts at an annualized rate of 5.4% since 2017 and currently offers a forward dividend yield of 2.4%.
Looking ahead, rising electricity demand, driven by economic growth, transportation electrification, and the expansion of AI-related infrastructure, presents significant long-term growth opportunities for Hydro One. To capitalize on these favourable trends, the company continues to invest in expanding its regulated asset base. It currently has approximately 14 transmission projects under development that could contribute to financial growth as they become operational over the coming years.
Additionally, Ontario has approximately 52 local electricity distribution companies (LDCs), with a combined rate base of around $26 billion. Hydro One is exploring opportunities to expand its presence through consolidation in this market, which could unlock operational efficiencies and generate meaningful synergies. Given its regulated business model, predictable cash flows, consistent dividend growth, and visible investment opportunities, Hydro One stands out as an attractive defensive stock for investors seeking stability and steady long-term returns.
Bank of Nova Scotia
Another defensive stock that I find attractive is Bank of Nova Scotia (TSX: BNS), which offers a diversified range of financial services across multiple markets. Its diversified revenue streams support stable financial performance and reliable cash flows, enabling the bank to deliver consistent shareholder returns. Over the last 10 years, Scotiabank has generated total returns of more than 210%, representing an annualized gain of 12.1%. Moreover, the bank has paid uninterrupted dividends since 1833 and increased its payouts at an annualized rate of 4.5% over the past decade. It currently offers an attractive forward dividend yield of 3.4%.
Beyond its improving financial performance, Scotiabank is undertaking a strategic shift to strengthen its more profitable North American operations while reducing exposure to riskier, less profitable Latin American markets. This repositioning could improve operational efficiency, enhance earnings quality, and support more sustainable growth. As part of its efforts to optimize capital allocation and streamline operations, the bank has also completed the acquisition of the remaining outstanding shares of Scotia Group Jamaica Limited.
Furthermore, a persistent inflationary environment could encourage central banks to maintain relatively restrictive monetary policies, potentially supporting lending margins. However, higher interest rates could also weigh on loan demand and credit quality. Meanwhile, Scotiabank has increased its share repurchase authorization from 15 million to 40 million shares, with buybacks reducing its outstanding share count by approximately 3.3%. This move could further enhance earnings per share and shareholder value.
Considering its diversified operations, improving business fundamentals, long dividend payment history, and ongoing capital optimization initiatives, Scotiabank appears to be an attractive defensive investment for investors seeking relatively stable returns and consistent dividend income.
