Having at least a portion of your portfolio as 'defensive stocks' is a good idea in my opinion. The market and economy can behave unpredictably, so it's good to have some stocks that you can rely on in any economic conditions.
It's important to choose from the right industry for your defensive stocks. Even though Commonwealth Bank of Australia (ASX: CBA) is Australia's biggest company and has been reliable, it might not be in the future. Financial businesses are notoriously cyclical.
Here are four businesses I think that would be good defensive additions to a Foolish portfolio:
InvoCare Limited (ASX: IVC)
InvoCare is Australia's market-leading funeral provider with a 33% market share. There is sadly an almost guaranteed amount of revenue for Invocare each year. This means management and shareholders can almost certainly rely on its dividend to be at least stable each year.
The number of deaths in Australia is predicted to steadily increase for the next two decades which will fuel growth. InvoCare is trading at 27x FY17's estimated earnings with a grossed-up dividend yield of 4.26%.
Healthscope Ltd (ASX: HSO)
Healthcare is another good defensive industry. Healthscope is Australia's second-largest private hospital operator.
Patients will always need to use hospitals, regardless of economic conditions. There are several factors relating to the ageing population which will increase the number of patients going to Healthscope's hospitals over time.
Healthscope has several hospital projects being completed over the next few years which will boost earnings too. Healthscope is trading at 21x FY17's estimated earnings with an unfranked dividend yield of 3.3%.
Cochlear Limited (ASX: COH)
This healthcare business provides hearing implants for children and adults. It's increasing the amount of revenue that is recurring, which will give the company a more consistent performance.
Customers will keep wanting Cochlear's product for the effect it has on their lives, as long as they can afford it.
Cochlear is trading at 35x FY17's estimated earnings with a grossed-up dividend yield of 2.68%.
Transurban Group (ASX: TCL)
Transurban is the toll road operator that helps people travel a little quicker for a fee. People will always value the time that they can save by going on Transurban's roads, so will keep using it whether the economy is booming or flat.
Transurban is one of Australia's best listed infrastructure businesses in my opinion. It's currently trading with an unfranked dividend yield of 4.42%.
Foolish takeaway
I think all four of these businesses have strong defensive qualities and would be much more reliable in an economic dip. At the current prices I think Healthscope is probably the best value to buy today.
If you aren't a fan of defensive businesses, then these three fast-growing companies will definitely appeal to you.
