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%.
A busy restaurant kitchen with a chef and staff rhythmically preparing food for delivery orders.
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.
8. Tyson Foods, Inc. (NYSE:TSN)
Tyson Foods, Inc. is a food company that operates in Pork, Beef, Chicken, and Prepared Foods. It distributes its products through meat distributors, military commissaries, grocery wholesalers, live markets, and other stores and vendors. A relatively subdued performance in the last year has meant that investors are relying on the 3.34% dividend yield for monetary gains.
TSN has a median price target of $64.5 according to Wall Street, based on data from 16 different analysts. The stock is trading just above its lowest price target of $58 with the highest price target of $75. These aren’t very attractive numbers, but for a stable business that pays out a healthy dividend, there is enough upside for investors looking to reduce volatility in their portfolio.
The stock is trading at a forward PE of 16.3. TSN’s highest revenue generator, the beef segment, is expected to decline by 1% in terms of production. However, this is made up for in the 2% increases in both chicken and pork segments. The prepared foods segment should top off a relatively stable year for the company, bringing in a total operating income of just over $2 billion.
TSN may not be the ideal growth story for investors but during volatile times, it is the go-to stock for income investors.
7. The Coca-Cola Company (NYSE:KO)
Coca-Cola is a producer, seller, and marketer of Coca-Cola trademark beverages. It provides sparkling beverages, water, and alcoholic beverages. The stock’s 2.95% dividend yield didn’t make it past our screener for this list, but we decided to include it due to the solid investment opportunity this stock provides in tough times.
KO grew at 12% in 2024 but the 2025 guidance predicts a slowdown, with growth expected to stay between 5% and 6%. One reason for this is the forex impact, so the underlying business is as healthy as ever. The company has rewarded long-term investors in the past and there is no fundamental shift in the business or the economy to suggest that won’t continue.
The forward PE ratio of 23.39 suggests the stock is slightly expensive compared to its historic range. The recent rally in the stock has a lot to do with this and investors may feel they missed out on an attractive price. However, buying great stocks at a premium isn’t entirely a bad thing as the last 10 years have shown us.
6. Cal-Maine Foods, Inc. (NASDAQ:CALM)
Cal-Maine Foods, Inc. is the producer, grader, packager, marketer, and distributor of egg products and shell eggs. It provides conventional eggs and specialty eggs. The stock’s 7.17% forward dividend yield is attractive, though questions about its sustainability remain. The company has a solid recent history of paying out dividends so one can expect it to continue, even if not at over 7% yield.
Cal-Maine Foods is a global powerhouse in egg production. About half of the company’s sales come from just 3 customers, namely Walmart & Sam’s Club, Publix, and H-E-B. This allows the company flexibility in streamlining its operations and keeping its costs low. Another factor that helps the company is its control of the supply chain, controlling the process from the breeding of hens to the distribution of the eggs.
CALM is also adjusting its business to meet the growing demand of cage-free eggs. People are increasingly choosing eggs laid by hens that aren’t confined to small cages. This trend means the growth rate of cage-free eggs is way higher than traditional eggs, so investors are glad to see the company making full use of this. Having said that, CALM’s business is cyclical and where the dividend yield is strong, the cyclicality does add that extra bit of risk and volatility.
5. General Mills, Inc. (NYSE:GIS)
General Mills manufactures and sells consumer foods across the globe. Some of its brands include Cocoa Puffs, Betty Crocker, Chex, Cheerios, Trix, and many more. The company’s stock offers a healthy 4.03% dividend yield.
GIS stock has a healthy dividend yield partly because its stock hasn’t gone anywhere in the last year and a half, with disappointing growth rates. This is what makes the stock’s yield and valuation so attractive, with it trading at a PE ratio of just 13.53. 2025 isn’t going to be a blockbuster year either, but looking at what comes after that is where the opportunity lies.
For starters, the strengthening euro is likely to help the company boost its profits. If inflation rises, GIS will have more room to increase prices and profitability, though it might take a few quarters for that to translate to the bottom line.
The firm is also restructuring its yogurt business and has a renewed focus on its pet segment. This could help with the turnaround and 4% is a very attractive yield to have while one waits for it.
4. The Clorox Company (NYSE:CLX)
The Clorox Company is the marketer and manufacturer of professional and consumer products. The company operates in the Household, International, Health and Wellness, and Lifestyle segments. A healthy 3.32% dividend yield means that, much like its products, the company’s stock is always in demand.
CLX stock tanked on its recent earnings report, which is what makes the opportunity so attractive. Since the cyber attack in 2024, Clorox has not only regained the market share it lost to competitors but has also improved its margins. This momentum will likely translate to a bull rally sooner rather than later.
2025 sales growth is expected to come in between 4% and 7%, with most of it coming in the later half of the year. 2026 is where the margin expansion should start to kick in according to the management. This is the result of productivity improvements as well as enhanced cost saving measures that the company plans to take. The CFO’s words reflected this factor on the earnings call:
We feel very confident in our ability to rebuild gross margins to 44% this year and expand EBIT margins by 25 to 50 basis points annually starting FY2026.
3. Philip Morris International Inc. (NYSE:PM)
Philip Morris International Inc. is a tobacco company that provides smoke-free products and cigarettes. The company also offers healthcare and wellness products. Its stock offers an attractive dividend yield of 3.56%.
Philip Morris is among the few companies that provide investors with both strong growth and consistent cash flows. The company’s management is focused on generating strong returns for shareholders over the last decade. It offered total returns of 107% to investors in the past five years, compared to the S&P 500’s returns of 101.9%. While this may not seem significant, the peace of mind associated with this investment is worth it.
The company posted a robust performance in FQ424, surpassing expectations with a revenue growth of 7.3% year-over-year. As a result of the solid earnings, the company’s stock surged. Ongoing developments and the attractive guidance for FY2025 make it a rewarding investment opportunity for investors.
Analysts are also optimistic about the company as tobacco and smoking product prices went up by 6.6% in February. Relaxation in some regulations is also seen as a catalyst for sector growth. Analysts believe that the company will benefit from all these favorable circumstances and the next bull run could be around the corner.
2. Target Corporation (NYSE:TGT)
Target Corporation is a general merchandise retailer company in the U.S. The company provides apparel, shoes, jewelry, beauty and personal care, accessories, cleaning, and other products. The stock’s 4.28% dividend yield continues to draw income-oriented investors’ attention.
After a disappointing Q3, the company reported its FY2024 results last month. Though sales were slightly less than the previous year, the company was able to reduce its net debt. This decline in net sales was due to low sales in the clothing, household, and electronics segment in the first half of 2024. Despite weak sales, the company continues to grow its gross margins.
Management expects sales to remain stable in 2025 regardless of a slowdown in consumer spending. Operating margins are expected to improve.
After a 36% decline in a year, the dividend yield is attractive and offers an opportunity for income investors willing to take exposure to the retail business.
1. The Kraft Heinz Company (NASDAQ:KHC)
The Kraft Heinz Company manufactures and sells beverages and food products globally. The company is well known for its sauces and condiments, especially the globally known ‘Heinz Ketchup’. The company’s stock has an attractive dividend yield of 5.29%.
KHC is one of those stocks that enjoys the backing of Warren Buffet’s Berkshire Hathaway. However, it has disappointed investors for years, trading sideways for about 5 years now. However, with the broader market trading at record valuations, a 5.29% yield is better than putting your money in the bank.
But that’s not why investors should buy this stock. The business is improving and here’s how. During the last 5 years, the company has continuously paid down its debt, reducing it by one-third approximately. The negative effects of the debt are further reduced by an improved operating cash flow. The cash flow to debt ratio has increased from 0.1 to 0.2 in 5 years, showcasing how the company has reduced its debt risk.
At a 16.2% cash flow to sales ratio, investing for the turnaround is worth it. Any little price appreciation will add significantly to the already strong dividend yield.
KHC is not on our latest list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 43 hedge fund portfolios held KHC at the end of the fourth quarter, which was 38 in the previous quarter. While we acknowledge the potential of KHC as a leading investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is as promising as KHC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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