3 Canadian Stocks to Play Defence in a Trade War

Canadian investors looking to shield their portfolios from volatility as trade tensions between the U.S. and Canada escalate may find solace in owning three defensive stocks right now. Defensive stocks, those anchored in resilient sectors like retail real estate, utilities, and consumer staples, offer a lifeline, combining stability with reliable dividends. These resilient low-volatility stocks thrive on domestic demand, insulating them from cross-border disruptions. Let’s explore three critical sectors and highlight standout candidates in each category. Whether you’re seeking steady income or capital preservation, these trade war stocks could fortify your portfolio against economic storms.

Dollarama stock: Discounting tariff risks

Discount stores operator Dollarama (TSX:DOL), though not a traditional grocer, dominates the value segment with 90% of sales from general merchandise, consumables like snacks, and household staples mostly priced under $5. Its pricing power and close to 1,600-store footprint in Canada ensure steady demand, even as budgets tighten.

Dollarama is a budget-friendly essentials provider that will cushion Canadian households if trade wars trigger a recession. Its stock has soared 23% year-to-date to print new all-time highs in 2025, protecting investor portfolios from tariff-war-induced volatility.

DOL stock is a darling of the TSX stock market right now. The Canadian defensive stock could provide shelter to consumers if tariff wars trigger a recession in the near term. The discount store giant also owns a large stake in South America’s Dollarcity.

That said, investors will pay a significant premium to get Dollarama stock’s trade war insurance cover. Trading at a historical price-earnings multiple (P/E) of 41.5, DOL stock isn’t cheap. But other defensive stocks from the same industry aren’t cheap either, given an industry P/E of 37.

SmartCentres REIT: Essential retail real estate for steady returns

Canadian retail real estate investment trusts (REITs) with open-air strip centre formats enjoyed strong, sustained occupancy rates during the pandemic. They could survive a trade war too.  

SmartCentres Real Estate Investment Trust (TSX:SRU.UN) is a resilient retail REIT that sustained monthly distributions during the past flash recession. Its strong tenant base (mostly grocery stores and essential services providers) remains resilient, and the REIT reported a strong 98.7% occupancy rate going into 2025.

The Canadian retail REIT is executing a multi-year mixed-use property development strategy that’s bringing more consumer populations onto its 195 existing properties, creating new city centres that may thrive and enrich unitholders. The REIT’s development pipeline could grow its asset base by 14% as it adds condos, apartments, townhomes, and self-storage spaces onto its properties, intensifying foot traffic in its “smart” centres.

The trust pays monthly distributions that yield a juicy 7.3%. The payout remained fully covered by recurring cash flow in 2024 with a 91.7% payout rate on adjusted funds from operations (AFFO), which improved from 93% in 2023.

Investors could pocket high-yield monthly paycheques from SmartCentres REIT while watching a trade war play out.

Hydro One: A utility stock powering portfolios through uncertainty

Canadian utilities’ earnings visibility and low cash flow volatility make them a marvel during periods of heightened economic uncertainty. Investors confident in Ontario’s sustained demand for stable electricity supply even through recessions may find comfort in owning the province’s largest power distributor: Hydro One (TSX:H) stock through a trade war.

Hydro One operates Ontario’s largest transmission and distribution network and remains a critical provincial monopoly somewhat insulated from trade risks. The electric utility is reinvesting cash flow and partnering with equity partners to grow its asset book and rate base in 2025.

With a 2.4% dividend yield and seven consecutive years of dividend raises, investors could view Hydro One stock as a financially stable utility with investor-friendly capital budgeting policies and a defensive stock to hold dear during an uncertain trade war.

Investor takeaway

In turbulent times, anchoring your long-term oriented portfolio in sectors driven by domestic necessities can provide peace of mind. These three defensive stocks to buy now offer a blend of yield, stability, and resilience – qualities every investor should prioritize as trade winds rage.

The post 3 Canadian Stocks to Play Defence in a Trade War appeared first on The Motley Fool Canada.

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More reading

• Dollarama vs. Canadian Tire: Why I’d Consider Them for My $7,500 Retail Investment
• Where I’d Invest $700 in 3 No-Brainer Canadian Stocks Under $50
• 2 High-Dividend TSX Stocks I’d Consider for a $10,000 Income-Focused Portfolio
• Monthly Income Champions: 3 Canadian Dividend Stocks Yielding Over 7%
• Canadian REIT Showdown: SmartCentres vs RioCan. Which Offers Better Value for Your Portfolio?

Fool contributor Brian Paradza has no position in any of the stocks mentioned. The Motley Fool recommends SmartCentres Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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