3 defensive stocks to own if the market crashes 

Woolworths Limited (ASX:WOW), Collins Foods Ltd (ASX:CKF) and Collection House Limited (ASX:CLH) all boast great defensive characteristics.

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Have you ever stopped to think how your family could be affected when the next financial crash occurs? The good news is that there are ways to position your portfolio now to defend against the inevitable bad times.

High quality, dividend-paying stocks in essential industries will typically perform well across all stages of an economic cycle, and the best value of these may be staring you in the face.

Woolworths Limited 

Woolworths Limited (ASX: WOW) has traditionally been a great defensive stock with an ever-increasing dividend and capital growth to match.

The owners of Australia's largest supermarket chain, Woolies has a prime location in almost every town in Australia, and along with Coles (owned by Wesfarmers Ltd (ASX: WES)) enjoys significant market share.

Even better, the near 30% fall in share price in the past year, which sees Woolworths trading on a very enticing price-to-earnings ratio of 14.2, with a fully franked dividend of 5.1%, means that this is an investment to make now and enjoy in all parts of economic cycles for the next 50 years.

There are plenty of voices out there shouting that the Masters hardware venture has been a flop, but I believe those concerns are overplayed and that eventually Masters will be one of the great growth drivers for Woolworths.

The bottom of the share price for Woolworths may not have been reached yet, but I'm not waiting to snap up the 5.1% fully franked dividend in today's low interest environment.

Collins Foods Ltd.

High priced restaurants may take a hit in a recession, but fast food companies like Domino's Pizza Enterprises Ltd. (ASX: DMP) should remain solid performers throughout the economic cycle.

People still eat out when times are tough, and a trip to the local take-away is a small luxury that can be enjoyed by almost all members of society no matter what the markets are doing.

Domino's enormous share price rally in recent times has pushed its price-to-earnings ratio to 57.4 and makes it fully valued – and the 1.25% dividend it is paying to investors is not as tasty as its stuffed crust meat-lover's pie.

A great alternative at current prices is Collins Foods Ltd (ASX: CKF), Australia's largest owner and operator of KFC franchises, Sizzler Restaurants and the newly created Snag Stand.

It is trading on more conservative price-to-earnings ratio of 13.7 and is paying out a 4.3% fully franked dividend.

If the hot chips at its Snag Stand franchise are anything to go by, this is a company that has the potential to really accelerate dividend growth as its new chain expands.

Collection House Limited

Following a market crash, it's not uncommon to see borrowers defaulting on debt at a higher rate than usual.

Listed debt collection companies like Collection House Limited (ASX: CLH) generate revenues by buying debt ledgers from other companies unwilling or unable to chase up their own accounts, usually at a deeply discounted rate.

Collection House buys these debts at cents on the dollar and pays an ever-growing dividend to investors yielding 3.8% fully franked.

A recently announced partnership trust with Balbec Capital to buy even bigger books of debt adds another revenue stream, and any market squeeze is sure to generate more customers for Collection House to chase up and steer into its debt repayment plans.

Foolish takeaway

Fortune favours the prepared, and you can take steps now to ensure your investment portfolio is ready for whatever the global markets throw at you in coming years.

Better yet, if the sky does not fall, these companies will have no trouble continuing to do what they do best – paying out juicy dividends to investors!

Motley Fool contributor Patrick Allen owns shares in Woolworths Limited, Collins Foods Ltd and Collection House Limited.  We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policyThis article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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