6 Defensive Stocks to Watch
If you’re looking to lower risk, defensive stocks might be a good way to go. The companies below have long track records and stable cashflows. No matter what the market is doing, their customers keep paying.
This reliability has helped these companies pay steady dividends. Through thick and thin, investors keep collecting income.
When there’s a market downturn, dividends can help lessen the blow. If you invest in some of these defensive stocks, you know a steady stream of income keeps flowing into your account. Some investors consider it a “sleep well at night” strategy.
Without further ado, here’s the list of defensive companies to consider…
Top Defensive Stocks to Watch
- Verizon (NYSE: VZ)
- Flowers Foods (NYSE: FLO)
- CVS Health (NYSE: CVS)
- General Mills (NYSE: GIS)
- Coca-Cola (NYSE: KO)
- Procter & Gamble (NYSE: PG)
This list covers different sectors. And by investing across the board, you can further reduce your risk. For example, if shares of one company drop in any given month, others in your portfolio might keep you in the green.
To see why these companies made the list, let’s look at some company highlights…
Why Verizon is a Top Defensive Stock
Verizon is a household name, and the company has well over 100 million subscribers. It also serves 99% of the Fortune 500 companies. Verizon has built a powerful brand that reaches into more than 150 countries.
Verizon is one of the top defensive stocks due to its reach along with its recurring revenue streams. Customers tend to cut these services last when they fall on tough financial times. This has helped Verizon survive many downturns since its start in 1983.
To maintain a leading position, Verizon invests billions each year. This year, capital expenditure might come close to $20 billion. And a good chunk of that will go toward 5G. To expand, Verizon has taken on close to $180 billion in debt. That’s steep… although Verizon can easily cover those payments and have plenty to spare…
Verizon has paid a dividend for more than 30 consecutive years. Its current yield is above 4%, and that’s hard to beat in our low-interest-rate world. The recent payout ratio also comes in below 60%. So it looks pretty safe going forward.
Flowers Foods Keeps Paying Shareholders
Flowers Foods sells bakery foods in the U.S. and has 46 bakeries in 18 states. You can find its products under brands such as Nature’s Own, Dave’s Killer Bread, Canyon Bakehouse, Tastykake and Wonder Bread.
The food industry has thin margins but also some of the best defensive stocks. No matter which way the market moves, people need to eat. Going one step further down the food chain, you might also want to consider these agriculture stocks. They might be a great way to counter inflation going forward.
Flowers Foods has a long history of paying dividends. Its current dividend yield comes in above 3%, and the payout ratio is just above 70%. This gives a little wiggle room to continue raising the dividend.
CVS Health is a Healthcare Defensive Stock
CVS Health is another household name. It has more than 9,900 retail locations across 49 states, the District of Columbia and Puerto Rico. CVS has also had 50 million patients visit its MinuteClinic.
As the U.S. population continues to grow and age, CVS Health will profit along the way. The healthcare sector can be a great area to find defensive stocks. However, it is a competitive industry with lots of regulatory risk. Nonetheless, CVS has been navigating healthcare changes and continues to reward shareholders…
CVS Health has paid a constant dividend over the past few years. It hasn’t raised it, but the payout ratio comes in below 40%. The company has been focusing on paying down some debt to strengthen its balance sheet.
General Mills Expands its Revenue Streams
Many customers know General Mills for its cereals, such as Cheerios. However, it sells many different types of foods. This includes snacks, baking products, fruit, pizza and ice cream. This assortment of products helped General Mills make our list of defensive stocks.
The diversification helps General Mills generate steady cashflows. If one brand falls, the others might continue upward. On top of its well-known foods, General Mills has branched into pet food. The company bought Blue Buffalo Pet Products for $8 billion. This is a growing market and provides further diversification.
When it comes to rewarding shareholders, General Mills has a long track record. The company has paid dividends going all the way back to 1898. It’s also raised its dividend nine out of the past 10 years. The dividend also looks safe with the recent payout ratio coming in around 50%.
Coca-Cola is One of Warren Buffett’s Top Defensive Stocks
Coca-Cola has products in more than 200 countries and territories. Many customers are familiar with its soft drinks, but it’s expanded beyond those. Coca-Cola sells coffee, water, juices and teas. As consumer preferences change, Coca-Cola adapts to keep cash flowing.
Coca-Cola has been one of Warren Buffett’s favorite defensive stocks. It’s been a great growth stock as well. Buffett bought $1 billion worth of the stock back in 1998, and today, it’s still one of his largest holdings. Coca-Cola has survived and thrived through multiple market crashes.
With Warren Buffett’s stamp of approval, Coca-Cola is a great stock to consider. It has a long history of rewarding shareholders, and that looks like it will continue. The dividend yield comes in around 3%.
Procter & Gamble is a Diversified Income Machine
Procter & Gamble has hundreds of different products. Its portfolio of brands includes Bounty, Tide, Downy, Gillette, Old Spice, Head & Shoulders, Herbal Essence, Febreze, Mr. Clean, Swiffer and Crest… just to name a few.
People continue to buy these products no matter what the stock market is doing. As a result, Procter & Gamble is one of the best defensive stocks. It also has the ability to pass along inflation costs to customers.
This pricing power has helped Procter & Gamble pay bigger dividends each year. It’s raised its dividend for more than 60 years. Its current dividend yields come in just above 2.5% and looks safe going forward.
Defensive Stocks and Income Opportunities
The defensive stocks above are solid opportunities. They also overlap with these top consumer staples stocks. So feel free to check those out as well. And a good reminder… it’s always important to do your own research before investing.
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About Brian Kehm
Brian Kehm double majored in finance and accounting at Iowa State University. After graduating, he went to work for a cryptocurrency company in Beijing. Upon returning to the U.S., he started working with financial publishers and also passed the CFA exams. When Brian isn’t researching and sharing ideas online, you can usually find him rock climbing or exploring the great outdoors.