With the bear market of 2022 not yet a distant memory and the banking-sector scare still fresh in investors’ minds, the stock market is still on the skittish side.
The S&P 500 has managed a 6.1% increase in the past month as of April 18, and the Federal Reserve seems to be softening its stance on interest rate hikes. Earnings-reporting season so far is giving investors hope for a financial sector rebound after the turmoil caused by regional bank collapses, and the single-family housing market is showing signs of life.
Even if it’s “less bad” on Wall Street these days, many investors still worry that the economy will tip into recession and are looking for a defensive approach. Goldman Sachs researchers said Tuesday that the U.S. could reach its debt limit sooner than anticipated because of weaker capital gains tax inflows as of April 14, also a recession risk.
Why Defensive Stocks Appeal to Investors Now
In this market climate, some investors are seeking out alternative investments, such as gold and cryptocurrency. In fact, crypto leader Bitcoin (BTC) is up 83.1% this year as of April 18, and the price of gold recently surged past $2,000 and approached a record high.
Others are going with defensive stocks. These stocks are not as tethered to economic cycles as so-called cyclical stocks and are therefore attractive to investors who want to steel themselves against a recession to safeguard the value of their portfolio. Defensive stocks mostly lie in market sectors that focus on products and services that will be in demand regardless of what the economy does, such as health care and consumer staples.
These resilient stocks can hang tough even in a bear market, defined as a period when securities prices suffer a 20% decline from recent highs, or in a recession with declining economic activity that lasts for months or even years. So, investors who prioritize capital preservation and appreciation are drawn to these less risky stocks. The best companies in the defensive stock category also tend to have reliable dividends.
If a defensive strategy sounds like your preference for the time being, then consider adding these seven defensive stocks to your portfolio:
| Defensive Stock | Dividend Yield |
| AbbVie Inc. (ticker: ABBV) | 3.7% |
| Altria Group Inc. (MO) | 8.2% |
| Consolidated Edison Inc. (ED) | 3.3% |
| Hershey Co. (HSY) | 1.6% |
| Kinder Morgan Inc. (KMI) | 6.3% |
| M&T Bank Corp. (MTB) | 4.1% |
| Ventas Inc. (VTR) | 4.1% |
AbbVie Inc. (ticker: ABBV)
With a modest gain of 1% so far in 2023, when some other pharma stocks are deeply in the red, AbbVie has shown that it has staying power. Its strength in 2022 was thanks in part to the fact that the pharmaceutical company had a strong lineup of blockbuster drugs along with a thriving research pipeline to ensure it kept the numbers moving in the right direction. Industry analysts now predict that the $284 billion company will be the largest of all the Big Pharma stocks as soon as 2028. That means plenty of stability going forward, too, thanks to its unrivaled scale. The icing on the cake for low-risk investors is its 3.7% dividend yield, which will keep the cash trickling in no matter what short-term trends appear.
Altria Group Inc. (MO)
“Sin stocks” like tobacco giant Altria are some of the best defensive investments you’ll find, as consumers hit hard by any downturn tend to rely on these companies to get through the tough times. Altria is behind many of the biggest brands in the space, including Marlboro cigarettes, Black & Mild cigars, and smokeless tobacco products Copenhagen and Skoal. Considering the well-known risks of these offerings coupled with the fact that they are addictive to those who use them, it’s hard to imagine anything disrupting baseline demand for tobacco in the near future. MO may not have breakneck growth ahead, but it’s a well-run company that has delivered dividend increases over 53 consecutive years as proof of its reliability and income potential in any market environment. Altria is up 3.1% so far this year as of April 18 and has a generous dividend yield of 8.2%.
[READ: U.S. Debt-Ceiling Deadline 2023: What Investors Should Know]
Consolidated Edison Inc. (ED)
Investors looking for rock-solid investments frequently turn to utility stocks, as the publicly traded companies in this sector have wide moats against future competition and incredibly reliable demand. As a regional utility that serves the area around New York City, ConEd is even more stable than most of the stocks in this sector. It has a big base of 3.5 million electricity customers and another 1.1 million natural gas customers in the region that show consistent baseline demand in any economic environment. Secondly, ConEd is one of the oldest publicly traded utilities in America and has a 48-year track record of offering at least one dividend increase per year to shareholders. That means this is a stock that offers incredible stability regardless of other ups and downs on Wall Street. ConEd beat earnings-per-share estimates by 4% in the last reported quarter, and it pays a 3.3% dividend yield.
Hershey Co. (HSY)
If you look at a chart of Hershey since mid-2018, it’s pretty much a steady upward climb — an amazing feat considering both the major disruptions caused by the pandemic as well as the chronic volatility of 2022. This speaks to both the low-risk nature of this consumer staples company and the well-run nature of its global confections business. Shares are up 12.6% so far in 2023 as of April 18, and thanks to its many brands including Skinny Pop popcorn, Reese’s peanut butter cups, Jolly Ranchers candy and others in addition to its eponymous chocolate, there’s a great chance that HSY will continue to do well regardless of short-term trends on Wall Street. Even sweeter, HSY stock has a dividend yield of 1.6%.
[READ: The Higher Price of Gold Reflects Recession Worries]
Kinder Morgan Inc. (KMI)
Energy stocks can be a bit volatile based on variations in oil and gas prices. However, KMI is insulated from these ups and downs and offers a generous dividend as an additional hedge against declines. As a “midstream” play focused on energy infrastructure, Kinder Morgan is focused on transporting and storing energy instead of drilling for oil. That translates to a more stable business model. In 2015, KMI was caught unprepared for oil price volatility and was forced to slash its dividend — an event that seriously weighed on shares. That was bad news for investors, but now that KMI shares have settled into a more sustainable range, the company is paying a 6.3% dividend yield that may be easier to manage if times get tough again.
M&T Bank Corp. (MTB)
Bank stocks burned some investors more than a decade ago when the mortgage crisis gutted once-stable financial firms — and even megabanks like Citigroup Inc. (C) were caught up in the fray. Add to that the Silicon Valley Bank and Signature Bank collapses in March, and investors may be wary of financial stocks now, whether they present as bargains or not.
But regional bank M&T, with about 700 locations from West Virginia to Connecticut to Washington, D.C., is a “goldilocks” financial stock that is neither too big to be involved in aggressive investment banking, nor too small with its $21.5 billion market cap. That means it should do very well regardless of what the market throws at it — particularly in this rising interest rate environment that allows it to make more money off its core lending business.
M&T is still down 12.6% in 2023 as of April 18, after regional banks took a hard hit as a group in March. But M&T rallied earlier this week amid better-than-expected earnings reports from other banks, such as Charles Schwab Corp. (SCHW), showing it is well positioned in the current market environment. Its 4.1% dividend yield is a bonus.
Ventas Inc. (VTR)
Ventas is a $17.8 billion real estate investment trust, or REIT, that focuses on health care properties such as doctors’ offices, hospitals and senior living communities. It currently operates a massive portfolio of more than 1,200 properties, giving it a wide reach.
The recession-proof medical sector in the U.S. should see strong earnings regardless of consumer spending trends. To further build on its track record of success, Ventas completed its acquisition of senior housing firm New Senior Investment Group Inc. in 2021. That will help ensure ample cash to support its 4.1% dividend yield as well as future growth.
Baron Funds noted in its fourth-quarter investor letter that the long-term demand outlook for Ventas’ senior housing portfolio, which represents 45% of its assets, looks “favorable,” and that its success will be “driven in part by growth of the 80-plus population, which is expected to accelerate in the years ahead.”
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7 Best Defensive Stocks for a Steady Return on Investment originally appeared on usnews.com
