Top defensive stocks to protect your portfolio

Defensive stocks can inject some stability to your share portfolio when financial markets are volatile or when the economy is heading for a downturn. We explain defensive stocks and outline seven for investors to consider.

Why invest in defensive shares?

Every share portfolio should contain some defensive stocks to hedge against potential risk and to install a safety net in the event of a downturn in financial markets. A small proportion of your investments should be deployed there when you have a bullish stance on the future of equities, with more funds being allocated when bearish sentiment emerges.  

Right now, the global economy continues to tick along and financial markets remain resilient in the face of tough times. But there are several reasons why investors should consider bolstering their portfolio with some defensive stocks. US President Donald Trump’s war on trade continues to escalate, the UK’s departure from the EU is far from settled, globalisation is slowly being picked apart, and most major economies have passed peak growth, with discussions now centred on when the next recession will be.  

You should track defensive stocks even if you decide now is not the right time to add them to your portfolio. Like safe havens, investors tend to start piling into defensive stocks when bearish sentiment emerges, which can help identify when the market experiences a change in mood. This applies the other way, with an unravelling of defensive stocks suggesting investors are selling up as they have a greater appetite for riskier investment opportunities.  

You can trade take a position on defensive shares with IG by speculating on its price movements through derivatives like CFDs. Open an account to get started. 

7 defensive stocks to bolster your share portfolio 

  1. McDonald's
  2. Coca-Cola
  3. Procter & Gamble
  4. Novartis
  5. AT&T
  6. American Electric
  7. Altria

We have identified seven sectors that have proven relatively resilient when the wider market has entered a downturn in the past and have picked a leading candidate from each industry for investors to consider*.  

McDonald's – food producer

Market Cap Beta Five-year Div Yield Five-Year Div Growth 52-week Price Range Broker Recommendation
McDonald's $167 billion 0.49 2.79% 6.10% $156.6-$221.93 Buy

Food producers and sellers are regarded as defensive stocks as people always need to eat. This can span a variety of companies: those that produce food, those that sell it, agriculture and ingredient suppliers, and so on.  

One of the best defensive food stocks is McDonald’s. The Big Mac maker is one of the most reliable companies to invest in. The share price has proven less volatile than the wider market and experienced steady annual increases, while the dividend, raised annually for 42 consecutive years, is one of the safest around.  

It is unsurprising that McDonald’s is regarded as a strong defensive stock. The company boasts one of the most globally-recognised brands in the world and its low-cost produce remains popular even if people have had to tighten their purse strings. Its worldwide presence means it is diverse enough to absorb a downturn in one country with growth in another. Economists have even created the Big Mac index to track the price of the burger in different countries as a way of measuring changes in inflation around the world.  

Key figures ($, Billion) 

Calendar year 

2014 2015 2016 2017 2018
Revenue 27.4 25.4 24.6 22.8 21
Operating profit 7.9 7.2 7.7 9.6 8.8
Pre-tax profit 7.4 6.6 6.9 8.6 7.8
Diluted earnings per share (EPS) ($) 4.82 4.8 5.44 6.37 7.54
Dividend ($) 3.28 3.44 3.61 3.83 4.19

Coca-Cola – drinks manufacturer

Market Cap Beta Five-year Div Yield Five-year Div Growth 52-week Price Range Broker Recommendation
Coca-Cola $229 billion 0.45 3.12% 7.10% $44.25-$54.82 Buy

Similarly, large drinks manufacturers can also outperform the wider market during the downturn. This predominantly includes soft-drink companies, but some alcoholic-drink manufacturers also deliver steady performances.  

Coca-Cola is the world’s largest beverage company that, like McDonald’s, offers a variety of low-priced goods that sell well regardless of the economic backdrop. It has penetrated most countries and dominates fridges around the world, with over 500 sparkling and still brands under its belt. This diversification and dominance gives it the ability to circumnavigate downturns better than others. Shareholders in the drinks behemoth enjoy a respectable dividend yield and the share price has steadily increased each year over the past decade.  

Key figures ($, Billion) 

2014 2015 2016 2017 2018
Revenue 46 44.3 41.9 35.4 31.9
Operating profit 9.7 8.7 8.7 7.6 8.7
Pre-tax profit 9.3 9.6 8.1 6.7 8.4
Diluted EPS ($) 1.6 1.67 1.49 0.27 1.57
Dividend ($) 1.22 1.32 1.4 1.48 1.56

Procter & Gamble – consumer goods

Market Cap Beta Five-year Div Yield Five-year Div Growth 52-week Price Range Broker Recommendation
Procter & Gamble $293 billion 0.41 3.15% 3.4% $78.49-$121.76 Buy

Non-durable consumer goods – items that typically last less than three years such as soap, washing detergent and nappies – are items that people constantly need. General retailers like Target and Walmart also boast defensive qualities, with low beta scores and reliable dividends.  

Some products are better shielded than others, but many of the big players have multiple product lines under their belt. Procter & Gamble is one of the largest consumer goods companies in the world, with brands spanning everything from toilet roll to sanitary towels and shampoo to razors.  

The business and the dividend are both reliable even in the face of adversity. Its beta and its dividend yield both outperform its rival Unilever.  

Key figures ($, Billion) 

To June 30 

2015 2016 2017 2018 2019
Net sales 70.7 65.3 65.1 66.8 67.7
Operating profit 11 13.4 14 13.7 5.5
Pre-tax profit 11.8 13.4 12.2 13.3 6.1
Diluted EPS ($) 2.84 3.49 3.69 3.67 1.43
Dividend ($) 2.59 2.66 2.7 2.79 2.89

Novartis - pharmaceuticals

Market Cap Beta Five-year Div Yield Five-year Div Growth 52-week Price Range Broker Recommendation
Novartis $230 billion 0.58 3.29% 3.90% $74.97-$96.31 Buy

Pharmaceutical companies are responsible for producing vital medicines and treatments. These are often treated as priorities for governments and consumers, so their spending is not hastily cut in the event of a downturn.  

Swiss firm Novartis is one of the leading pharma giants with its best-selling treatments covering ailments including multiple sclerosis, plaque psoriasis and cancer. It also has a string of popular vaccines and generic medicines. Novartis’s dividend yield is higher than the sector average but so is the likes of AstraZeneca and Pfizer. 

Novartis shares have suffered ups and downs over the year, but movements are limited and the dividend, while not the fastest-growing, is consistent. Investors should be aware that it pays dividends in Swiss Francs, which are than translated into dollars for American depositary receipt (ADR) holders, so be aware of the effect of foreign exchange and movements between USD/CHF (and any other currency you may want to convert it into).   

Key figures ($, Billion) 

Calendar year 

2014 2015 2016 2017 2018
Net sales 52.2 49.4 48.5 49.1 51.9
Operating profit 11.1 9 8.3 8.6 8.2
Pre-tax profit 12.3 8.1 7.8 9 13.8
Diluted EPS ($) 4.31 2.88 2.8 3.25 5.38
Dividend (CHF) 2.6 2.7 2.75 2.8 2.85

AT&T - telecoms

Market Cap Beta Five-year Div Yield Five-yead Div Growth 52-week Price Range Broker Recommendation
AT&T $255 billion  0.58 5.50% 2.10% $26.80-$34.96 Buy

Telecoms companies and infrastructure managers secure income by providing necessary services on a contract basis. Phones, broadband and television are all seen as basics for any household in a developed economy and signing people up on contracts means their revenue is more predictable.  

AT&T Inc (All Sessions) offers communication services around the globe with its core market in the US and produces content and entertainment for the industry through WarnerMedia. The AT&T share price has proven far less volatile than the wider market and the dividend yield, having been raised for 35 consecutive years, is solid albeit not the fastest-growing.  

In the UK, BT Group could be attractive to investors as it has an edge with its management of OpenReach, the network that all telecoms providers in the country must use.  

Key figures ($, Billion) 

Calendar year 

2014 2015 2016 2017 2018
Revenue 132.4 146.8 148.9 145.6 152.3
Operating profit 18.6 20.4 23.5 20 26.1
Pre-tax profit 10.4 20.7 19.8 15.1 24.9
Diluted EPS ($) 1.24 2.37 2.1 4.76 2.85
Dividend ($) 1.85 1.89 1.93 1.97 2.01

American Electric - energy

Market Cap Beta Five-year Div Yield Five-year Div Growth 52-week Price Range Broker Recommendation
American Electric $45 billion 0.11 3.45% 5.40% $68.92-$91.99 Buy

While many stocks' defensive characteristics spawn from their international reach and diversification, others get theirs through owning monopolies in crucial areas. Utilities providing electricity and water are heavily regulated businesses with limited competition in their markets.  

American Electric Power has been around for over a century, generating and supplying electricity to over 5 million people in 11 US states. Revenue has remained largely flat each year, the dividend has been reliably raised on an annual basis and the share price has been on the up every year since the financial crash of 2008.  

Investors have water and electricity stocks to consider, as well as companies like National Grid that manage vital infrastructure for them to operate. Waste management firms can also be alternative utilities to consider as defensive stocks as they too operate businesses that are largely unaffected when a downturn hits.  

Key figures ($, Billion) 

Calendar year 

2014 2015 2016 2017 2018
Revenue 16.4 16.5 16.4 15.4 16.2
Operating profit 3.1 3.3 1.2 3.5 2.7
Pre-tax profit 2.4 2.6 0.5 2.8 2
Diluted EPS ($) 3.34 4.17 1.24 3.89 3.9
Dividend ($) 2.03 2.15 2.27 2.39 2.53

Altria - tobacco

Market Cap Beta Five-year Div Yield Five-year Div Growth 52-week Price Range Broker Recommendation
Altria $87 billion 0.39 4.06% 9.70% $42.20-$66.04 Buy

Although the tobacco industry faces some criticism from ethical investors and has suffered as smoking rates fall, they are solid income stocks that pay highly reliable dividends that can grow much faster than other industries.  

Altria, which owns cigarette brands including Marlboro as well as a string of others covering cigars and chewing gum, has revitalised its business and found new growth opportunities by investing in areas like vape pens and legalised cannabis. This means the backbone of the business is steady as it fundamentally relies on addicted consumers while its new ventures offer potential upside for the stock.  

Key figures ($, Billion) 

Calendar year 

2014 2015 2016 2017 2018
Net revenue 24.5 25.4 25.8 25.6 25.4
Operating profit 7.6 8.4 8.8 9.6 9.1
Pre-tax profit 7.8 8.1 21.9 9.8 9.3
Diluted EPS ($) 2.56 2.67 7.28 5.31 3.68
Dividend ($) 2 2.17 2.35 2.54 3


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