How to invest in defensive stocks in Canada: Recession-proof your portfolio
Updated: January 06, 2025
Recession! Volatility! Risk!
Three of the scariest words for investors, especially those who lean more conservative. But, what if you could invest in a (slightly more) recession-proof way, while managing volatility and risk?
Enter: Defensive stocks, otherwise known as non-cyclical stocks.
The Cole’s Notes on these investments are that they tend to be less affected by economic cycles and are therefore considered relatively stable. Let’s dig in to see if you should be adding some Canadian defensive stocks to your portfolio.
Defensive stocks are stable investments, typically the stocks of companies whose products or services have a constant high demand, regardless of economic cycles. A staple of defensive stocks is that they offer historically solid gains with less volatility. You can expect defensive stocks to have smaller “swings” – they may not gain as much value in bull markets but they probably won’t lose much in bear markets. They’re solid and dependable.
These stocks are considered recession-proof because there’s always a demand for their products or services. Companies such as Canadian National Railway, Loblaws and Fortis are considered defensive stocks.
Defensive stocks span different sectors as well, including groceries, utilities and healthcare. Think of things people tend to purchase regardless of the current economic state of the country. After all, people will always need to eat and heat their homes.
Best defensive stocks in Canada
Let’s look at some stocks that are considered some of the best defensive stocks in Canada.
- Market cap: $54.28 billion
- Dividend yield: 1.15%
- P/E ratio: 27.00
When people tighten their wallets, what’s one thing they can’t live without? Yep, food. Loblaws is Canada’s largest food retailer. It also has the benefit of owning Shopper’s Drug Mart, Canada’s largest drugstore chain — another necessity even during a recession.
- Market cap: $98.43 billion
- Dividend yield: 2.16%
- P/E ratio: 18.43
You know how in Monopoly, purchasing the railways won’t exactly make you rich? But they do give you a solid earner each time your opponent lands on one — especially if you own them all. Railway stocks work like that in real life, too. In Canada, companies will always need to ship their goods across our large country, and railways are the go-to way to do that. Even during economic hard times, the railways carry on carrying on. An added bonus is that Canadian National Railway has increased its dividend every year since 1996.
- Market cap: $31.28 billion
- Dividend yield: 3.91%
- P/E ratio: $19.49
If you like dividends – and dividends are a staple of defensive stocks – Fortis may be one of the best to add to your portfolio. If it continues with its historical trajectory, Fortis is set to increase its dividend for a consecutive 51 years. As a utilities provider, Fortis is a necessity. However, as a utilities provider, profits are reined in compared to some other companies because the Canadian government establishes how much the company can charge. Still, it’s about as solid a stock choice as you can get, even if it won’t ever shoot to the moon.
How to buy defensive stocks in Canada
The first thing you’ll need before investing in defensive Canadian stocks is a stock trading account. You can get one of these with any of the big banks or fintech trading companies, such as Questrade or Wealthsimple. You’ll then want to fund your account with cash so that you have money to purchase stocks. This is the easy part.
| Questrade | Wealthsimple | Qtrade |
|---|---|---|
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◦ Account maintenance fees: $0 per year
◦ Trading commission: $4.95 – $9.95 + Free ETF purchases |
◦ Account maintenance fees: $0 per year
◦ Trading commission: $0 commission on stocks and ETFs |
◦ Account maintenance fees: $100 per year (waived with $25,000 balance or two trades per quarter)
◦ Trading commission: $8.75 per trade (lower for active traders or young investors) |
| Questrade review | Wealthsimple review | Qtrade review |
| Visit Questrade | Visit Wealthsimple | Visit Qtrade |
Related: Best trading platforms in Canada
The hard part is deciding which stocks to buy. You’ll want to do as much research as you can beforehand, understand how dividends work, learn how to track historical performance and understand what a company does before buying shares. You’ll also want to research the sectors they’re in to make sure they align with your risk tolerance and investing goals.
ETFs and alternatives to defensive stocks
If individual stock picking is too complicated for you, you can still invest in defensive companies with exchange-traded funds (ETFs). ETFs are a collection of investments packaged together. They’re bought and sold like a regular stock on exchanges but provide an easy way to diversify your portfolio.
Some examples of defensive ETFs you might want to consider are:
- XST: iShares S&P/TSX Capped Consumer Staples Index ETF
- ZU: BMO Equal Weight Utilities Index ETF
- HH: Harvest Healthcare Leaders Income ETF
Related: Best ETFs in Canada
Another alternative to defensive stocks are GICs
Guaranteed investment certificates are investments that provide guaranteed interest while also protecting your initial investment. They’re one of the safest investments you can purchase, though it’s important to note that their performance is capped. That’s the tradeoff of guaranteeing your investment, making them a great option for risk-averse investors.
Related: Best GICs in Canada
Are defensive stocks right for you?
Defensive stocks have their place in many investing strategies. If you want investments that provide steady returns that are somewhat recession-proof, they may be a great choice, especially during times of economic uncertainty. The tradeoff is that they don’t typically pop off and make massive gains. So, particularly in bull markets, defensive stocks are outperformed by others.
As always with investments, do your due diligence, research the companies and industries you intend to invest in and proceed with caution.
FAQs
Noel Moffatt is a Canadian fintech expert with a passion for simplifying personal finance. Based in St. John’s, NL, he draws on his background in finance, SEO, and writing to deliver clear explanations and actionable advice. Noel is dedicated to equipping readers with the knowledge and tools they need to make informed financial decisions, striving to make personal finance more accessible and understandable through his in-depth articles and reviews.
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