Despite markets reaching new heights recently, many defensive stocks with reliable and consistent demand are still experiencing their own market dip. They have pulled back as investors repositioned into the artificial intelligence (AI) trend. However, conservative investors seeking stability are already looking for the next defensive stocks to buy to protect from another potential downside similar to Nvidia’s (NASDAQ:NVDA) 13% correction in mid-June.
Defensive stocks operate in industries that are less impacted by downturns and can provide stable dividend payments. For instance, companies that deliver essential services like electricity and water, irrespective of the economy. Healthcare companies produce necessary medical products and services with inelastic demand. Consumer staple businesses sell daily commodities like food and maintain steady sales.
Three defensive stocks in the renewable energy, pharmaceutical and tobacco industries are experiencing double-digit year-to-date (YTD) declines. However, they may have been punished too much for too long now for various reasons that appear priced in. Besides boasting a solid history of dividends and expecting growth next year, they also provide a competitive moat.
These characteristics can deliver regular income streams during these stocks’ standalone corrections, making them suitable defensive stocks to buy on the dip.
Clearway Energy (CWEN)
Clearway Energy (NYSE:CWEN) operates in the renewable energy sector and has approximately 5,000 net megawatts of wind and solar projects and around 2,500 net MW of natural gas generation facilities. Its diverse and defensive energy portfolio provides a stable revenue base, with recent commitments to Dan’s Mountain and Rosamond South expected to solidify the company’s growth outlook.
Despite trading 7% down in 2024, analysts’ average target shows a potential price increase of 26%. CWEN share prices may have fallen due to recent operational challenges in wind generation and reported losses. However, the dip may present a potential buying opportunity, given the company’s growth prospects. It boasts an EPS growth rate of 115.2%, with an average beat rate of 10.6%.
Clearway offers investors a strong income stream with a dividend yield of 6.63%, making it one of the most appealing defensive stocks to buy on the dip. It has consistently increased its dividend over the years, with a 1-year growth rate of 7.75%. In May, Clearway committed to returning value to shareholders. It announced a target dividend growth of 5% to 8% through at least 2026 without needing external capital.
Bristol-Myers Squibb (BMY)
Bristol-Myers Squibb (NYSE:BMY) is a global biopharmaceutical company with a diverse product portfolio, such as Eliquis and Opdivo, that generates stable revenues. Acquisitions in 2024 and pipeline progress strengthen its long-term growth prospects. The company also recently received two important approvals for Krazati and Augtyro and initiated new registration trials.
Yet its YTD performance remains at a 21% decline, partially impacted by a rating downgrade to neutral. It appears investors may have recently sold more BMY shares due to the recent Q1 revenue impact. Moreover, news around a minor anti-competition settlement and cancelling a cancer deal with Japan-based Eisai may have contributed to the stock’s decline.
While a substantial portion of BMY’s decline has been recent, analysts remain optimistic due to expectations of improved profitability amid cost-saving initiatives. Average price targets stand at $48.66 per share, representing an upside of 22.7% from current levels.
BMY is indeed one of the attractive defensive stocks to buy on the dip due to its strong dividend yield of 5.88% and consistent dividend growth rate of 5.41% over the past year. The company has a history of returning value to shareholders through dividend payouts and increases exceeding bond yield returns.
Universal Corporation (UVV)
Universal Corporation (NYSE:UVV) processes and supplies leaf tobacco and plant-based ingredients worldwide. It also provides value-added services and offers specialty vegetable and fruit-based ingredients, botanical extracts and flavorings for the human and pet food markets. Universal remains committed to its dual strategy to ensure cash flow stability, as it increased its dividend for the 54th year in a row.
The company’s tobacco business had strong results in fiscal year 2024, driven by a favorable product mix and strong customer demand. Tobacco companies typically enjoy high margins due to brand loyalty and pricing power. Operating income increased by 23% to $222 million for the fiscal year. However, earnings came in below expectations due to higher infrastructure investment costs and taxes. The ingredients business also saw lower revenues, though it only represents around 10% of the total.
Currently, the UVV stock price shows a 27% drop in 2024. Yet this has brought the company’s price-to-earnings (P/E) ratio down to 10.06, below the industry average of 12.85. Given a dividend yield of 6.9%, Universal still offers a strong income stream for investors at a time when it appears punished by short-term sellers. Analysts also see a price upside of over 20% from current levels, making UVV one of the defensive stocks to buy on the dip that is worth serious consideration.
On the date of publication, Stavros Tousios did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
