BCE CEO George Cope at the company’s 2013 AGM. (Chris Young/CP)
When you’re cruising down the highway at 120 kilometres per hour, you can take comfort in knowing your car’s half-dozen airbags will cushion the impact should you run into anything. They may not prevent injury, but you’ll exit the wreckage in better shape than if you didn’t have them.
Defensive stocks are a little like that. Still, they were put to the test in 2015. Last year’s top defensive stocks softened the blow of market declines over the past 12 months, but still ended down 5.2%. (The S&P/TSX composite index, for comparison, fell 7.8% over the same period.) As with some of our other screens, one stock in particular undermined the group’s performance. Without Potash Corp. and its 44% drop from a year ago, those using this screen would have finished the year more or less whole.
Typically, the large, dividend-paying companies that aren’t over-leveraged are the ones that hold their value in down markets. For this reason, we look for companies with a minimum market capitalization of $1 billion, with healthy dividend yields and A+ ratings from at least one debt-rating agency. For the second straight year, this criteria proved too big a hurdle. In order to come up with 10 names, we included six stocks with debt ratings as low as BBB+, which is still investment grade, albeit at the lower end of the scale. Finally, our defensive stocks must have a return on equity of 12% or more and a beta below one, indicating they are less volatile than the market average.
Only four companies from 2015 make this year’s list—a surprisingly high turnover rate. But perhaps that’s not such a bad thing. The 2016 list is composed entirely of financial and telecom stocks, which historically have been reliable performers, including last year’s top performer, CIBC.
It’s worth noting that the 2015 defensive picks that struggled were also the ones with lower debt ratings. If that pattern continues this year, you may want to focus your attention on the big bank stocks, like TD and CIBC, and show some caution around insurance and telecoms. All of these companies should be able to weather a down market, but some will provide a little more protection should you actually run into something damaging.
| Company | Ticker | Market Cap | Dividend Yield (%) | Return on Equity | Beta | Total 1-Yr. Return (%) | Debt Rating |
|---|---|---|---|---|---|---|---|
| BCE Inc. | BCE | 51,453.90 | 4.6 | 23 | 0.5 | 16.7 | S&P: BBB+ DBRS: BBB+ Moody’s: BAA |
| Canadian Imperial Bank of Commerce | CM | 38,840.70 | 4.8 | 18.4 | 1 | 8.8 | S&P: A+ DBRS: AA Moody’s: AAA Fitch: AAA |
| CI Financial Corp. | CIX | 7,511.10 | 5.2 | 27.9 | 0.9 | -20.7 | S&P: A- |
| Great-West Lifeco Inc. | GWO | 33,907.80 | 4.1 | 14.6 | 0.9 | -4.3 | S&P: A+ DBRS: A+ Fitch: A+ |
| Intact Financial Corp. | IFC | 11,490.10 | 2.7 | 12.7 | 0.6 | -1.3 | DBRS: A Moody’s: BAA+ Fitch: A |
| Rogers Communications Inc. | RCI.B | 25,310.00 | 3.9 | 24.7 | 0.6 | 16.8 | S&P: BBB+ DBRS: BBB Moody’s: BBB+ Fitch: BBB+ |
| Royal Bank of Canada | RY | 113,195.73 | 4.3 | 16.9 | 0.9 | 0.4 | S&P: AA- DBRS: AA Moody’s: AA- Fitch: AA |
| Sun Life Financial Inc. | SLF | 25,930.31 | 3.7 | 12.3 | 0.9 | 9.6 | S&P: A DBRS: A Moody’s: BAA Fitch: A |
| Telus Corp. | T | 23,686.53 | 4.6 | 17.5 | 0.6 | -0.9 | S&P: BBB+ DBRS: BBB+ Moody’s: BAA Fitch: BBB+ |
| Toronto-Dominion Bank | TD | 102,885.80 | 4 | 12.8 | 1 | 4.6 | S&P: AA- DBRS: AA Moody’s: AA+ Fitch: AA- |
More from the 2016 Investor 500 Market Guide:
How to position your portfolio for the rest of 2016
Risk-tolerant investors will find opportunities over the next 12 months. The rest of us should keep our heads down
Top 15 Most Profitable Companies
Top 15 Companies by Revenue
Top 15 Companies by Market Cap
Top 15 Companies by Total 5-year Return
Canada’s Top 10 Best Defensive Stocks for 2016
Canada’s Top 10 highest-yielding dividend stocks for 2016
