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Best Defensive Stocks UK – Invest with 0% Commission

If you’re worried that your investment portfolio is vulnerable to a market downturn, one solution is to invest in defensive stocks. Defensive stocks are shares from sectors like healthcare, consumer goods, and utilities that typically fare well during periods when the market is dropping.

In this guide, we’ll review the 10 best defensive stocks in the UK for 2021. 

Best Defensive Stocks UK List

Here are our picks for the 10 best defensive stocks in the UK for 2021:

  1. The Coca-Cola Company (KO) – Best Defensive Dividend Stock – Invest Now
  2. The Procter & Gamble Company (PG) – Best Consumer Goods Defensive Stock – Invest Now
  3. British American Tobacco (BATS) – Best UK Defensive Stock – Invest Now
  4. Constellation Brands Inc. (STZ) – Best Performing Defensive Stock
  5. Dollar General Corporation (DG) – Top Defensive Stock among Institutional Investors
  6. The J.M. Smucker Company (SJM) – Best Defensive Value Stock
  7. Keurig Dr. Pepper Inc (KDP) – Defensive Stock with Strong Financials
  8. Monster Beverage Corporation (MNST) – Top Profitability Defensive Stock Pick
  9. PepsiCo Inc. (PEP) – Lowest Volatility Defensive Stock
  10. Walmart Inc. (WMT) – Best Mega-Cap Defensive Stock

Best Defensive Stocks UK Reviewed

Let’s take a closer look at the 10 best defensive stocks in the UK to help you decide which are good candidates to incorporate into your portfolio.

1. The Coca-Cola Company (KO) – Best Defensive Dividend Stock

The Coca-Cola Company has been one of the top picks in the consumer defensive sector for many years. The firm’s top brands, including Coca-Cola itself, are recognized all over the world and they don’t easily lose value when the market swings lower.

best defensive stock UK - Coca Cola

With a market capitalisation of almost $221 billion, Coca-Cola is the third biggest defensive stock on our list. It currently offers a dividend yield of 3.27%, which makes it attractive for income investing. Notably, Coca-Cola had enough cash reserves on hand when the COVID-19 pandemic hit to nearly pay the entire year’s dividend.

Moreover, Coca-Cola has paid its dividends punctually for a total of 58 consecutive years. So, you can rest assured the dividend is safe even during a downturn.

While not a defensive concern, we also think that Coca-Cola shares could regain some of the ground they lost during the pandemic and deliver price appreciation for investors.

67% of retail investor accounts lose money when trading CFDs with this provider.

2. The Procter & Gamble Company (PG) – Best Defensive Consumer Goods Stock

In the US, it’s almost impossible to visit a grocery store without running into Proctor & Gamble products in every aisle. The company owns beloved brands like Tide, Bounty, Duracell, Pantene, Gillette, and Crest. These are consumer staples, so sales don’t dip much even when the economy tanks.best defensive stock UK - Procter & Gamble

On top of that, Procter & Gamble stands out for its incredibly high return on equity (ROE). ROE is a financial metric that measures the profitability that a company can produce for every dollar its shareholders have invested. P&G currently has a 30% ROE, plus a 2.4% dividend yield and a one-year stock performance of 28.4%.

Procter & Gamble has managed to maintain its ROE above 20% for 9 of the past 10 years, primarily through stock buybacks. The firm is also conservatively financed, with its long-term-debt-to-equity ratio standing below 0.5 at the moment. All of this reflects the strength of the firm’s business model.

67% of retail investor accounts lose money when trading CFDs with this provider.

3. British American Tobacco (BATS) – Best UK Defensive Stock

British American Tobacco currently offers an eye-popping dividend yield of 8%, which makes it one of the best dividend stocks in the United Kingdom.

To be fair, the tobacco industry is in a long-term decline. Cigarette sales have been dropping for many years due to health concerns and tougher regulations, and the Biden administration in the US has proposed banning menthol cigarettes altogether. Despite this, we think British American Tobacco shares will remain strong for many years to come. The company has plenty of resources to maintain its dominance in the industry and even potentially grow its dividend.

Last year, BATS generated £7.3 billion in free cash flow while distributing a total of £4.75 billion in dividends. That is a payout ratio of just 65%, which indicates that the company should have no problem maintaining its dividend into the future.

67% of retail investor accounts lose money when trading CFDs with this provider.

4. Constellation Brands Inc. (STZ) – Best Performing Defensive Stock

Among companies in the US consumer defensive sector, Constellation Brands has been one of the most profitable for investors over the past 12 months. In 2020, it delivered a whopping 85.5% gain.

best defensive stock UK - Constellation Brands

Despite this strong price appreciation, the firm’s forward price-to-earnings ratio is not as high as one would expect. The P/E ratio is currently at 22, which indicates that Constellation Brands could have more growth ahead of it. It’s worth noting that this company also pays a dividend yield of 1.3%.

From a fundamental perspective, analysts expect to see the firm’s earnings per share growing at an average annual rate of 8.8% for the next 5 years. The firm’s revenues have multiplied by nearly three times over the past 10 years. Even a market downturn won’t be enough to slow Constellation Brands down.

67% of retail investor accounts lose money when trading CFDs with this provider.

5. Dollar General Corporation (DG) – Top Defensive Stock among Institutional Investors

A high level of institutional ownership tends to give a stock an extra layer of defensiveness, as institutions – such as asset management firms, investment funds, endowments, and trusts – tend to think in terms of portfolio management rather than trading. As a result, they’re typically not quick to dump shares when the stock market nosedives.

That’s the rationale behind our recommendation of Dollar General as a top defensive stock. Around 93% of shares of this US dollar store chain are owned by institutional investors. So, it’s unlikely that there’s a lot of fast selling activity around this stock during the net market crash.

We also like Dollar General as a long term investment. The firm delivered a 39% return for investors over the past 12 months and analysts expect to see its earnings per share growing at a rate of 15% per year over the next 5 years. Meanwhile, the company’s forward price-to-earnings ratio currently stands at 18. That gives us a price-to-earnings-to-growth (PEG) ratio near 1, which means the stock price is right where it should be based on projected earnings growth.

67% of retail investor accounts lose money when trading CFDs with this provider.

6. The J.M. Smucker Company (SJM) – Best Defensive Value Stock

Among large-cap US stocks, The J.M. Smucker Company is an interesting play for value investors based on the firm’s valuation multiple, dividend yield, and recent performance.

best defensive stock UK - JM Smuckers

In the past 10 years, SJM has managed to double its sales, operating income, and net income. Additionally, this dividend stock is currently offering a 2.8% yield and has a long-term-debt-to-equity ratio below 0.5. Moreover, SJM’s P/E ratio is just 15 despite the fact that earnings have grown at a compound annual growth rate of 8%. That gives us a PEG of less than 2 – not bad for a company with stable dividends, a sound balance sheet, and decent growth.

Since SJM owns a variety of household food brands, we expect sales to remain strong no matter what the broader market is doing.

67% of retail investor accounts lose money when trading CFDs with this provider.

7. Keurig Dr. Pepper Inc (KDP) – Defensive Stock with Strong Financials

Another top value investment is Keurig Dr. Pepper. This company has a strong portfolio of consumer-facing brands, a diversified product line, and extremely strong financials.best defensive stock UK - Dr Pepper

In the past three years, KDP has managed to grow its sales from $7.4 billion to $11.6 billion while its net income has nearly doubled. Meanwhile, the firm’s financial structure is fairly conservative with an LTD-to-equity ratio below 0.5.

In the past 12 months, KDP has delivered a 38% gain for investors while offering a decent dividend yield of 2.2% based on today’s closing price. Additionally, the company’s forward P/E ratio stands at 20 with an average annual EPS growth rate of 9, which gives us a PEG ratio of 2. By all measures, this company seems like an attractive investment for fundamental investors who want a blend of value and defensiveness.

67% of retail investor accounts lose money when trading CFDs with this provider.

8. Monster Beverage Corporation (MNST) – Top Profitability Defensive Stock Pick

Monster Beverage Corporation is almost alone among large-cap stocks in that it has zero long-term debt. That alone makes it worth a closer look for anyone in search of a stock that can weather an economic meltdown.best defensive stock UK - Monster Beverage

There’s more to like about Monster, too. This company has one of the most profitable operations in the US food and beverage sector, with operating margins above 30% for the past 7 years. Its net margins have progressively grown from 17% in 2011 to almost 30% this year.

During a period of 10 years, Monster sales have grown from $1.8 billion to almost $4.6 billion and it brought in net income of $1.4 billion in 2020. Meanwhile, analysts are forecasting that the firm’s earnings per share (EPS) will grow at least 15% annually – which explains why the company’s forward P/E ratio is over 30.

All in all, the company’s massive competitive moat and lack of debt make it extremely attractive as a defensive stock.

67% of retail investor accounts lose money when trading CFDs with this provider.

9. PepsiCo Inc. (PEP) – Lowest Volatility Defensive Stock

Typically, volatility is the enemy of defensive stock investors. For that reason, PepsiCo stands out as a stock with among the lowest monthly volatility of any US defensive stocks. PepsiCo’s monthly volatility is just 1.63%, meaning the share price rarely moves more than 2% up or down in a single month.

Investors will also appreciate that this stock offers a 3% dividend yield. In many ways, PepsiCo looks more like a bond than a stock, which makes the company’s shares very attractive as a low risk investment.

Over the long run, PepsiCo has delivered growth, too. The shares have gone up 60% in the past 5 years, which is equal to a 10% compound annual growth rate.

67% of retail investor accounts lose money when trading CFDs with this provider.

10. Walmart Inc. (WMT) – Best Mega-Cap Defensive Stock

Walmart shares offer a combination of low volatility, attractive earnings growth, strong brand positioning, and decent performance. If you only want to add a single defensive stock to your portfolio, this company is worth considering.best defensive stock UK - Walmart

During the pandemic crash of February 2020, Walmart was one of the stocks that experienced only small value losses. That’s in part because most investors could not imagine a scenario in which Walmart would stop earning money. Whether a pandemic, an economic downturn, or a natural disaster, people flock to Walmart for groceries, household items, and whatever else they need.

Walmart offers a dividend yield of 1.6%, and the company is expected to grow at a rate of 6% per year. The firm’s forward P/E ratio of 23 is somewhat expensive, but quite possibly justified for a business as defensive as Walmart. It’s also worth pointing out that Walmart shares have surged 120% in the past 5 years.

67% of retail investor accounts lose money when trading CFDs with this provider.

Are Defensive Stocks a Good Investment?

Defensive stocks can be a good investment in several different situations.

Firstly, they are good for investors who have low risk tolerance. These stocks typically don’t appreciate as fast as growth stocks in the high-flying tech sector, but they also don’t experience crashes like growth stocks often do. In fact, defensive stocks are particularly good additions to moderately conservative and moderately aggressive portfolios.

Defensive stocks can also be good as a hedge against a market downturn. Whether you think a pullback or recession is imminent or you just want to guard against the possibility, adding defensive stocks to your portfolio can help you be prepared.

More generally, there are a few things that make defensive stocks stand out for investors:

Steady Dividends

Defensive stocks tend to operate in very mature markets such as consumer staples and health care. Many defensive stocks have strong profit margins and are able to return earnings to investors in the form of dividends. In fact, many of the best dividend stocks are also defensive stocks.

Low Volatility

Unlike growth stocks or high-risk investments, defensive stocks tend to experience very little volatility. That means that the price doesn’t jump up when the market is rising, nor does the price drop suddenly when the market is falling.

The low volatility nature of these stocks makes them particularly important as a hedge against the stock market dropping. If you have defensive stocks in your investment portfolio, they can help float your portfolio while other stocks are losing value.

Stable Business Models

Consumer defensive companies usually have sound business models that rely on the sale of essential goods through vast distribution networks. They tend to have minimal, easily forecastable changes in sales from year to year and steady profits. On top of that, many consumer goods companies are household names – consumers are loyal to specific brands, which reduces customer turnover.

Modest Valuations

Investors have gotten used to extreme valuations, particularly among tech stocks. While P/E and PEG ratios have also ballooned for defensive stocks compared to historical averages, the valuations of these companies is typically much more modest. There are even many defensive stocks, like The J.M. Smucker Company and Keurig Dr. Pepper Inc., that could be considered value investments.

Best Stock Brokers to Buy Defensive Stocks

Now that you have a list of potential defensive stocks to buy in the UK, you can buy shares of any of these companies by using the services of one of these two stock apps.

1. eToro – Best Broker to Buy Defensive Stocks with 0% Commissions

Best biotech stocks UK available on eToroFounded in 2007, eToro is a popular social trading platform that offers access to thousands of different financial instruments including stocks, cryptocurrencies, indexes, and ETFs. With eToro, you can easily buy any of the best defensive stocks we have mentioned in this list along with nearly 2,000 types of shares offered by the platform. Another advantage is that you can invest either through contracts for difference (CFDs) or buy buying shares outright.

One of the best things about eToro is that you can buy and sell shares without having to pay any commission. That greatly reduces the cost of building a diversified portfolio comprised of defensive stocks. The broker does charge a spread, but this is typically small.eToro Copy Trading

Additionally, you can use the platform’s social trading features to check what other successful investors are doing. This is a great way to share ideas and find new stocks to invest in. eToro also offers copy trading, so you can mimic the moves of more experienced stock traders.

eToro is regulated by the UK’s Financial Conduct Authority (FCA). You can get in touch with customer support 24/5 if you need help with your account.

Pros:

  • eToro is a regulated broker with more than 13 years in the industry.
  • User-friendly social trading interface.
  • Thousands of different instruments available to trade with.
  • Zero-commission trading for stocks and exchange-traded funds (ETF).
  • Multiple available payment methods for depositing money.

Cons:

  • Limited research and analysis tools for experienced traders

67% of retail investor accounts lose money when trading CFDs with this provider.

2. Libertex – Best Broker to Buy Defensive Stocks via Low-Spread CFDs

Libertex logoLibertex is a Cyprus-based CFD broker that offers access to stocks, forex, ETFs, indices, commodities, and more. This broker stands out for charging tight spreads for CFD trading.

Libertex offers the popular MetaTrader 4 trading platform, which is typically used by more experienced traders because of its steep learning curve. However, the broker also has its own trading platform that’s much simpler to use. You can monitor price movements and keep an eye on the broader stock market with a news feed and economic calendar. Libertex’s trading platform is also available as a mobile stock app for iOS and Android.libertex trade indices

One catch to Libertex is that the broker has a limited selection of shares – there are only about 50 stocks to trade, mostly from the US. That said, you will find many of the defensive stocks we highlighted available to trade with Libertex.

Libertex is regulated by the Cyprus Securities and Exchange Commission (CySEC), one of the leading regulators in Europe.

Pros:

  • CySec-regulated brokerage firm.
  • Wide range of asset classes available for trading including cryptocurrencies and commodities.
  • Low-cost CFD trading including zero-spread trades for some instruments.
  • Supports MetaTrader 4 integration.

Cons:

  • Instruments can only be traded via CFDs.
  • The platform does not discloses its fees in a transparent way.
  • Limited number of instruments available for trading.

74% of retail investor accounts lose money when trading CFDs with this provider.

How to Invest in Defensive Stocks in the UK?

Ready to buy defensive stocks in the UK? We’ll walk you through the process using eToro, our recommended best stock broker.

Step 1: Open An Account

The process of signing up with eToro starts by clicking the “Join Now” button located at the upper right corner of the firm’s official website.

eToro sign up

After that, you will be required to provide your personal information including your first and last name, e-mail address, and a password to register with the platform.

Step 2: Verify Your Identity

Now that you have opened an account, eToro will ask you to provide a valid ID along with either a utility bill or a bank account statement through which they can verify your address.

This process can either be completed once you have registered or later if you will be depositing less than £1,800. However, you will be required to complete it to make your first withdrawal, so it’s a good idea to get it off your plate at this point.

Step 3: Deposit Funds

Next, deposit money into your account. With eToro, you can deposit money through any of these methods:

  • Debit card
  • Credit card
  • E-wallets like PayPal, Neteller and Skrill
  • Bank transfer

Step 4: Buy Defensive Stocks

Use the search bar located in the upper area of the trading interface and enter the name of the company you want to buy.

buying best defensive stocks uk

After you have clicked on the name of the business, you will be sent to the stock’s individual page where you can find more information about the company, its financial performance, and a charting tool in case you want to check the latest price action.

To complete the purchase you’ll have to click on the blue “Trade” button located in the upper right corner of the interface and then you will enter the amount of money that you will be investing in this particular stock. Click ‘Open Position’ in order to buy your first defensive stock.

eToro – Buy Best Defensive Stocks UK with 0% Commission

Defensive stocks are low-risk stock investments that tend to weather market downturns better than other stocks. They offer decent dividend yields, low levels of volatility, and sound fundamentals, and can be a great addition to any moderately conservative or moderately aggressive portfolio.

If you’re ready to buy defensive stocks, you can get started today by investing with eToro. Just click the link below to create an account!

67% of retail investor accounts lose money when trading CFDs with this provider.

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About Alejandro Arrieche PRO INVESTOR

Alejandro is a financial analyst with more than 7 years of experience in the industry. He writes technical content about economics, finance, investments, and real estate and have also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing and financial analysis. Other publications Alejandro has written for include The Modest Wallet, Capital.com, and LearnBonds.

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