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Best Defensive Stocks UK

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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 10 popular defensive stocks in the UK for 2021. 

 Defensive Stocks UK List

Here are a list of 10 popular defensive stocks available to invest in the UK:

  1. The Coca-Cola Company (KO)
  2. The Procter & Gamble Company (PG) 
  3. British American Tobacco (BATS)
  4. Constellation Brands Inc. (STZ) 
  5. Dollar General Corporation (DG) 
  6. The J.M. Smucker Company (SJM)
  7. Keurig Dr. Pepper Inc (KDP) 
  8. Monster Beverage Corporation (MNST) 
  9. PepsiCo Inc. (PEP)
  10. Walmart Inc. (WMT) 

 Defensive Stocks UK Reviewed

Let’s take a closer look at the 10 popular defensive stocks in the UK by carrying out an in-depth review and analysis.

1. The Coca-Cola Company (KO)

The Coca-Cola Company has been a popular pick 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.

68% of retail investor accounts lose money when trading CFDs with this provider.

2. The Procter & Gamble Company (PG) 

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. 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.

3. British American Tobacco (BATS)

British American Tobacco currently offers an eye-popping dividend yield of 8%, which makes it a popular dividend stock in the United Kingdom.

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.

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.

4. Constellation Brands Inc. (STZ) 

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, and 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. However, this is not indicative of future gains. Every stock has an element of risk associated with it, so only invest after conducting prior research of your own.

5. Dollar General Corporation (DG) 

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.

Furthermore, around 93% of shares of this US dollar store chain are owned by institutional investors.

Dollar General has the potential to be 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.

6. The J.M. Smucker Company (SJM)

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.

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

7. Keurig Dr. Pepper Inc (KDP) 

Another popular 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.

8. Monster Beverage Corporation (MNST)

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.

9. PepsiCo Inc. (PEP)

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.

10. Walmart Inc. (WMT) 

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.

Are Defensive Stocks a Valuable Investment?

If you are looking to invest in defensive stocks, lets take a look at a couple factors that may affect your decision for doing so.

Firstly,they could be valuable if you have a 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.

Defensive stocks could also be used 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.

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.

Popular Stock Brokers that Offer Defensive Stocks

Now that you have a list of potential defensive stocks to invest in the UK, you can purchase shares with the use of a stock trading broker.

In the sections below, we review two brokers that allow users to invest in defensive stocks in the UK.

1. eToro

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 have the option to purchase defensive stocks and nearly 2,500 types of shares offered by the platform. Users can also invest either through contracts for difference (CFDs) or purchasing shares outright.

On eToro, you may buy and sell shares without having to pay any commission. The broker does charge a spread, but this is typically small.eToro Copy Trading

Additionally, users can also use the social trading features available on the platform to check what other successful investors are doing. This allows users to share ideas and find new stocks to invest in. eToro also offers copy trading, so you have the chance to 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.

Stock Broker Minimum Deposit Fractional Shares? Pricing System Cost of Buying Stocks Fees & Charges
eToro $10 Yes – $10 minimum 0% commission on ALL real stocks, spreads for CFDs Market spread is not included when buying real stocks No Deposit fees, $5 withdrawal fee, $10 inactivity fee, no account management fees.

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2. Libertex 

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.

75.3% of retail investor accounts lose money when trading CFDs with this provider.

How to Invest in Defensive Stocks in the UK?

If you are looking to invest in defensive stocks in the UK, you should choose a suitable stock broker that caters to your investing requirements.

After selecting a stock broker, you can begin trading in defensive stocks by following these 4 steps:

Step 1: Open a Trading Account

Head over to the homepage of your chosen broker and begin the account set-up process. You will be required to fill in your personal details – including your full name, email address and mobile number. Create a username and password for the platform to continue.

Step 2: Verification Process

Most reputable brokers in the UK are regulated by the FCA – which is why users may be required to verify their accounts. To do this, simply upload proof of ID (a copy of your driver’s license or passport) and proof of address (a copy of a bank statement or utility bill). Once these documents have been uploaded, your broker should verify them in a couple of minutes.

Step 3: Deposit funds

The next step is to deposit funds into your trading account. Most brokers may support 1 or more of the following payment methods:

  • Credit card
  • Debit card
  • Bank transfer
  • e-wallet

Choose your preferred payment option and deposit the funds into your account.

Step 4: Invest in Defensive Stocks

Once your account has been funded, proceed to search for any defensive stocks or any other stock you wish to purchase on your platform’s search bar. Fill in the amount you want to credit into the trade, and confirm your transaction.

Conclusion

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.  However, users should make sure to only invest in stocks are conducting their own prior research and analysis.

FAQs

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Alejandro Arrieche author check sign 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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