Defensive, high quality stocks are a must for most investors who want to build a portfolio with solid foundations. While smaller stocks – even speculative stocks – may be added in small quantities for excitement and possibly some alpha, most investors rightly maintain a bias towards blue-chip stocks.
Blue-chip stocks are appealing from numerous angles including the fact they have comparative advantages which act as a moat around their business. In turn this moat helps provide a solid earnings base which makes their dividend payments reliable.
Here are two examples of particularly strong stocks which could offer almost bulletproof protection to your portfolio.
1) Transurban Group (ASX: TCL) owns toll roads both in Australia and in the USA. If you're looking for a company with a great business model, don't drive past Transurban! The ability to 'clip the ticket' on every car that passes along your road or over your bridge is a big strength – particularly if alternate routes are unappealing as this makes the assets you own a quasi-monopoly.
While owning a great asset, such as CityLink in Melbourne could cause some companies to rest on their laurels, this hasn't been the case with Transurban. Rather, the company has been busy snapping up distressed assets at attractive prices and setting the scene for future growth.
The stock has produced a total shareholder return (TSR) of 11.1% per annum for the last decade and based on one analyst consensus forecast for FY 2015 is trading on a partially franked dividend yield of 5%.
2) Computershare Limited (ASX: CPU) is one way to add plenty of global exposure to your portfolio. The transfer agency and share registry business has operations spanning Asia, Australia, NZ, Europe, the UK and North America. The global reach coupled with its wide range of clients creates a diversified revenue base which provides plenty of protection for its business.
With the share price rallying 30.5% in the past year, the 10-year TSR is now a whopping 18.8%. While some investors may be put off by the skinny dividend forecast in FY 2015 of just 2.5%, others may think this points towards the company investing in more acquisitive growth opportunities.
