Two Defensive Stocks For Your Portfolio During Harsh Volatility

WRITTEN BY Dan Kent | UPDATED ON: August 2, 2019

Oil and Banks Carrying TSX To New Highs

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post. Stocktrades Ltd will run advertisements on our posts. These advertisements do not represent an endorsement by us.

We all want to see our portfolios head in a straight line. A straight line up of course. Unfortunately, that’s not the way it works, and it’s not the way it will ever work. Those who are just learning how to buy stocks in Canada are likely very uncomfortable with volatility. However, you’ll get used to it.

The DOW has suffered two of its biggest single day losses of the year this week, and it has had a large effect on even the best Canadian stocks. During times of volatility, it helps to have defensive stocks in your portfolio. Here are two of them you should be looking to add today. If you’re looking to get even more defensive, you could look to purchase utility stocks. We’ve got one here that provides both a large dividend yield and value.

Andrew Peller (ADW.A)

Andrew Peller (TSX:ADW.A) is a producer and marketer of wines. The company has wineries in British Columbia, Ontario and Nova Scotia. It has a wide variety of brands, including Peller Estates, Trius, Wayne Gretzky, Sandhill, Black Hills and Conviction.

Andrew Peller is primarily a defensive stock because of its alcohol sales. Research has shown that alcohol consumption actually increases during times of economic uncertainty.

Most investors would associate Andrew Peller’s small market cap (around $630 million) with high volatility, but they would be wrong. With a beta of 0.39, Andrew Peller is showing it is significantly less volatile than the market. In fact, it hasn’t had a negative month since April, where it lost just -0.15%.

Andrew Peller provides one of the strongest dividends in the country at the time of writing. Its yield is small at 1.43%, but it is important to look at the overall health and growth of the dividend prior to making assumptions. Andrew Peller has grown its dividend at a rate of 8% annually over the last 5 years, with its most recent increase coming in well above that at 13%.

The stock is also a Canadian Dividend Aristocrat, raising dividends for 13 straight years. With a payout ratio of only 40% and the dividend making up only 31% of free cash flows, there is plenty of room for continued growth. 

Dollarama (DOL.TO)

Dollarama (TSX:DOL) is Canada’s largest dollar store operator. The company has almost 1200 stores in operation across the country and offers a wide variety of consumer products and seasonal items at discounted prices.

So why is Dollarama an attractive stock during an economic downturn? When times become tight, people look to pinch pennies and save wherever they can. Common items that can be picked up at your grocery store for a premium may now be worth the trip to a dollar store to save money.

Dollarama is one of Canada’s best performing IPOs in recent memory. The stock took a nosedive in late 2018 (much like all of the TSX) on fears of stalling growth, but it has recovered back to original price levels.

Dollarama plans to add 60-70 stores annually to its network, and analysts still expect the company to post double digit earnings growth and high single digit sales growth over the next year.