The importance of defensive dividend stocks only becomes clear when the broader market is taking a hit. The S&P is down nearly 8% in a month while Nasdaq has lost over 11.41%. Investors are wondering how to protect themselves from volatility and the answer lies in defensive stocks.
Here is a key distinction investors must understand. Growth stocks rely on price appreciation to generate shareholder returns, something that is hard to achieve when the broader market is facing a severe sell-off. Dividend stocks, on the other hand, became more attractive. They not only help reduce the volatility but as their price goes down, their yield becomes more attractive.
We therefore decided to identify the best stocks for such a scenario. To come up with the list of 10 defensive dividend stocks to buy during a market sell-off, we only considered stocks belonging to the Consumer Defensive sector with a market cap of at least $2 billion and a dividend yield of at least 3%.
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10. Kenvue Inc. (NYSE:KVUE)
Kenvue Inc. is a consumer health company that operates through Skin Health, Self Care, and Beauty & Essential Health segments. The company’s stock offers a 3.59% dividend yield.
KVUE has been a disappointment for IPO investors as the stock has continuously underperformed with guidance cuts in the last two years. 2025 isn’t projected to be great either. This means the stock trades at a discount to its peers and if you can trust the management to turn things around, KVUE is a great bet with solid dividend support.
The maker of Band-Aid and Tylenol has already improved its management and marketing efforts which is what’s driving the modest growth in 2025. However, things could take off by next year, especially in the context of Starboard: the activist investor that realized the value of the business and has called for a shake-up.
Earlier in the week, Starboard successfully negotiated a seat on the company’s board. Here’s why they want things to change:
Despite the company’s promising future prospects, Kenvue has suffered from persistent disappointing and deteriorating financial results, missed commitments, and ineffective board oversight, resulting in stock price underperformance and a significant valuation discount compared to peers.
Now that the company has finally signed an agreement with the activist investor, there is a good chance it can focus on the business again, with the added benefit of a new mission thanks to the fresh board members.
9. PepsiCo, Inc. (NASDAQ:PEP)
PepsiCo, Inc. is the manufacturer, seller, marketer, and distributor of different convenient foods and beverages. It operates in Quaker Foods North America, Latin America, Frito-Lay North America, and other segments. A year of underperformance against peers has meant that the stock trades at an attractive dividend yield of 3.65%.
Pepsi is one of those consumer stocks that are suffering because people have started going for healthier alternatives. The management itself has admitted this by saying:
I think there is a higher level of awareness in general of American consumers towards health and wellness. And this is driven by potentially all the conversation around obesity drugs, but also other conversations that are happening around the space of health and wellness.
But great companies are always able to pivot at the right time and Pepsi isn’t any different. The company is trying its best to address this change in consumer preferences. A recent development in this regard is the company’s decision to acquire Poppi, a healthier soda alternative.
Poppi belongs to a family of beverages that are low in sugar and contain fruit juices, fiber, and apple cider vinegar. This makes it a better alternative to traditional carbonated drinks such as the ones that Pepsi sells. Poppi has tripled its sales every year since 2020 and now Pepsi wants in on the action to take it to the next level.
