Why these 3 defensive stocks should be part of every portfolio

It’s easy to panic whenever the stock market takes a turn. Seeing your stocks fall in value every other day can worry even the hardiest of investors.

Investor extraordinaire Warren Buffett famously said that it’s “only when the tide goes out do you discover who’s been swimming naked.” I think his point is tied closely to his investment philosophy of investing in excellent companies at excellent prices. This philosophy truly shines when the market starts to slide. And when that happens, it’s time to take focus off the day-to-day prices of stocks and focus on the intrinsic value of what your shares represent – a real stake in a real company.

The following three companies have been successful through thick and thin, and chances are they will continue to be successful no matter what uncertainties the future may bring.

Commonwealth Bank of Australia Ltd (ASX: CBA): The Commonwealth Bank of Australia has been a part of our economic and social landscape for over 100 years, and if there’s one bank that will still be around 100 years from now, it’s this one. With easily the largest market capitalisation of the major banks, this lead is reflected in its market share of various banking services: 25% of Australia’s home loan market, 25% of Australia’s retail deposits and 28% of Australia’s household deposits.

Commonwealth trades at about $76 a share and delivers an exceptional 5.5% dividend yield.

Telstra Corporation Limited (ASX: TLS): Although ranked the third most valuable brand in Australia in 2013, you don’t need that study to know how dominant Telstra is in Australasian communications. At a recent price of $5.40 a share, Telstra delivers a 5.6% dividend yield.

This yield is legendary among investors as being one of the most reliable things in an unreliable world. Telstra is not ignorant of this reputation and its 2014 report makes it clear that this strong, reliable dividend yield is one of its primary methods of delivering shareholder value now and well into the future.

Woolworths Limited (ASX: WOW): In the same study of valuable brands, Woolworths was ranked number one. With a little over 370 supermarkets in operation, Woolworths is firmly a part of Australia – though you don’t need me to tell you this. With a recent price of $33.80, Woolworths Limited delivers a great 4.2% dividend yield.

These companies have been a part of our economic landscape for decades, and will be a part of our future too. One more thing that they have in common is a reliable and stellar fully franked dividend. The strength of these companies makes them all but immune to short-term downturns, and with their dividends, you know your money is working harder than it ever could in a savings account.

Perhaps the one downside to these three companies is that although they deliver strong dividends, they lack significant capital growth potential. In truth, companies that deliver strong dividends and have significant room for growth are as rare as hen’s teeth. Investing in one early is truly a blue moon opportunity.

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Motley Fool contributor Mitch Aoki does not have an interest in any of the companies listed in this article.

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