The 2 Best Defensive Canadian Stocks to Buy Right Now

Worried about an absurdly expensive stock market? Here are the two best defensive Canadian dividend stocks to buy right now.

| More on:

Today’s market is one of the most critical periods in history to focus on defensive stock picks, because it appears to be absurdly expensive.

The S&P 500 Shiller cyclically adjusted price-to-earnings (CAPE) ratio suggests the U.S. stock market is trading at its highest valuation in history (second only to the internet bubble)!

S&P 500 Shiller CAPE Ratio Chart

S&P 500 Shiller CAPE Ratio data by YCharts.

Note that each peak in the graph was followed by a downturn, some more devastating for investors than others. A look at the chart indicates we could be closer to a peak than not, but there’s no way to tell, unless in hindsight.

XIU Chart

Data by YCharts.

The Canadian stock market moves in tandem with the U.S. market. So, Canadian stock investors need to tread just as carefully as U.S. stock investors.

Many stocks are now trading at stratospheric valuations. Here are two of the best defensive Canadian stocks to buy right now. They’re defensive in the aspects of quality and valuation. Moreover, they all pay a growing dividend!

A cheap Canadian dividend stock

Andrew Peller (TSX:ADW.A) is a quality value stock pick that pays a nice dividend. It is one of the largest wine sellers in Canada that produces and markets quality wines and craft beverage alcohol products.

The company has a list of award-winning premium and ultra-premium Vintners Quality Alliance (VQA) brands, including Trius, Thirty Bench, Wayne Gretzky, Conviction, etc. It also owns and operates about 101 well-positioned independent liquor retail locations in Ontario.

The company’s last fiscal year that ended on March 31, 2021, was negatively impacted by the pandemic. However, the results were resilient.

In mid-June, it reported sales up 2.8%, thanks to a resilient and diversified trade channel network and the launch of a new e-commerce platform.

Gross margins dropped a bit to 39.8% versus 43.5% in the prior year. EBITDA grew 2.5% to $63 million. Class A earnings per share increased 18% to $0.65, which implied a payout ratio of about 34%.

Importantly, the stock is undervalued with a 34% margin of safety, which suggests 12-month upside potential of 51%!

Additionally, the company is a Canadian Dividend Aristocrat that has maintained or increased dividends every year since at least 2003. Just this month, management increased its Class A annual dividend by 10% to $0.246, which equates to a starting yield of 2.56%.

Another defensive Canadian stock

Alimentation Couche-Tard (TSX:ATD.B) is another Canadian Dividend Aristocrat with a solid history of growing its dividend. Today, it starts you off with a yield of about 0.8%, but it has been increasing its dividend at an incredible rate. For example, ATD.B’s two-year dividend-growth rate is 18%.

It owns, operates, and consolidates convenience stores and roadside fuel retailers. Analysts believe the stock is undervalued by 32% with 47% 12-month upside potential.

For the fiscal year to date, Couche-Tard revenues fell 25% to US$33.5 billion. However, the gross profit rose 6% to US$7.9 billion, operating income climbed 22% to US$2.9 billion, and diluted earnings per share jumped 22% to $1.92.

The company will be reporting its fiscal Q4 and full-year 2021 results after the TSX closes today.

The Foolish takeaway

The TSX doesn’t provide many consumer defensive sector stock options, as the sector makes up only about 3.5% of the Canadian market. Today, it’s a good opportunity to pick up undervalued consumer defensive stocks Andrew Peller and Alimentation Couche-Tard.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool owns shares of and recommends ALIMENTATION COUCHE-TARD INC. Fool contributor Kay Ng owns shares of Alimentation Couche-Tard and Andrew Peller.

More on Stocks for Beginners

An investor uses a tablet
Stocks for Beginners

If I Could Only Buy 2 Stocks in the Last Half of 2024, I’d Pick These

I’m looking to buy two stocks over the next month. Here’s a look at my picks and why you should…

Read more »

dividends grow over time
Stocks for Beginners

The Smartest Growth Stock to Buy With $2,000 Right Now

Do you have $2,000 to invest for the long term? These three TSX stocks have and will continue to deliver…

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

OpenText stock has fallen in the last few years, but that could mean this top tech stock remains an undervalued…

Read more »

man touches brain to show a good idea
Dividend Stocks

3 No-Brainer REIT Stocks to Buy Right Now for Less Than $200

REITs have long been touted as some of the best dividend stocks out there if you want recurring, strong income.…

Read more »

grow money, wealth build
Dividend Stocks

3 Top High-Yield Stocks to Buy in November

If you want passive income, high yield dividend stocks are the clear choice. These are the best, and safest, out…

Read more »

Stocks for Beginners

Where will Loblaw Stock be in 5 Years?

Want a great food stock that can provide growth and income? Here's why Loblaw stock can offer that and more.

Read more »

A worker overlooks an oil refinery plant.
Dividend Stocks

3 Canadian Infrastructure Stocks to Buy Now

Infrastructure makes up everything we use, from the water we drink to the roads we drive. And these three infra…

Read more »

Sliced pumpkin pie
Stocks for Beginners

Ready to Invest With $2,000? 4 Stocks for November

Got $2,000 to start a new investment portfolio? Try these four high quality Canadian stocks for long-term wealth compounding.

Read more »