3 Defensive Stocks to Put on Autopilot

The need for one or more defensive stocks has never been greater. As the market continues to climb higher, the potential for a correction increases. To be clear, that’s a normal part of the market cycle and one that potential investors can weather without fear. An important lesson to prepare for that eventual correction is to diversify your portfolio with defensive stocks. Fortunately, the market provides plenty of options for investors to consider, and here are three defensive stocks for your portfolio.

Defensive stock #1: The railroad

Canadian National Railway (TSX:CNR)(NYSE:CNI) is one of the largest railroads in North America. It’s also the only railroad on the continent with access to three separate coastlines. This competitive advantage is a key differentiator to access ports and refineries near the coasts.

Despite the stereotype that railroads have a diminishing presence in 2021, railroads still carry more freight further than other means. That freight can be anything from wheat and zinc to automobile components and crude oil. In total, Canadian National hauls over $250 billion worth of goods each year.

This makes Canadian National a core component of the entire North American economy and a solid defensive holding for nearly any portfolio. Additionally, Canadian National provides investors with a respectable quarterly dividend, which works out to a yield of 1.68%.

Defensive stock #2: The telecom

Telecoms represent another solid option for investors to consider. One option for investors to look at is BCE (TSX:BCE)(NYSE:BCE), which happens to be one of the largest telecoms in Canada. BCE offers subscription-based internet, TV, wired, and wireless services to customers across the country.  The company also operates a massive media segment, which consists of dozens of radio and TV stations.

The pandemic has driven up the importance of maintaining internet and wireless connectivity. As a result, many office workers will continue to work from home post-pandemic. This will further expand what was already a solid defensive moat around BCE. Adding to that appeal is the fact that wireless devices continue to grow in importance. In the past decade, they’ve replaced hundreds of standalone devices, such as alarm clocks and radios to cameras, voice recorders, and daily calendars.

One final benefit from investing in BCE is the company’s quarterly dividend. BCE has been providing that dividend to investors for well over a century, and the current yield works out to an appetizing 6.21% yield.

Defensive stock #3: The utility

It would be impossible to write about defensive stocks for your portfolio without mentioning at least one utility. Today, that utility is Fortis (TSX:FTS)(NYSE:FTS). Fortis is a true behemoth. The company has a presence in multiple regions across Canada, the U.S., and the Caribbean, providing service to over 3.3 million customers.

The utility business is an extremely stable one. In fact, the business is so stable that critics often note that stability is a barrier to growth, In short, utilities provide a service that is governed by regulated long-term contracts. Those contracts stipulate ample compensation for providing that service and can span a decade or more in duration. In other words, as long as Fortis continues to provide that utility service, the company will receive a stable and recurring revenue stream.

That recurring revenue stream gets passed on to investors in part as in the form of a quarterly dividend. For Fortis, that current dividend works out to a respectable 3.80% yield, making it one of the better, safer returns for investors. Additionally, Fortis has provided annual consecutive bumps to that dividend for well over four decades. In fact, Fortis is on track to hit the 50-year milestone of dividend increases within the next few years. Reaching that milestone will make Fortis the first Dividend King in Canada.

Three defensive stocks to buy now and hold forever

The defensive stocks noted above provide ample growth and income-earning potential.  This makes them great candidates for nearly any portfolio in any market condition. In other words, buy them, hold them, and get rich.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou owns shares of Canadian National Railway and Fortis Inc. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway and FORTIS INC.

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