In this era of ultra-low interest rates I can understand the desire for people wanting to boost their returns by putting some money into the ASX share market.
But there’s a danger of a flood of people investing into shares that aren’t aware of how much extra risk they’re taking on. There is much higher risk with shares because businesses can go through problems, but cash is much safer – at least in the shorter-term.
It’s unavoidable that share prices drop sometimes. The market is made up of different people buying and selling for different reasons.
However, I do think it’s possible to find businesses that have high-quality, defensive revenue and profit that could hold up in most scenarios.
A lot of people think that Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD) are the best choices on the ASX for defensive earnings. They may produce quite consistent earnings year to year, but who knows how well travel and toll roads will hold up in tougher times? I’m not so sure, I know my usage of toll roads and the airport would be less (though it’s extremely limited already).
When I think of the idea of a safe business, I think of ones that could pay a steadily growing dividend despite tough operating times, have a path for long-term growth and don’t have cyclical earnings.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is one of the first ones that spring to my mind, particularly for solid dividends and long-term growth, although some of its largest assets might be described as somewhat cyclical such as its holdings of New Hope Corporation Limited (ASX: NHC) and Brickworks Limited (ASX: BKW).
Healthcare is one idea that could provide dependable earnings and a consistent dividend. Ramsay Health Care Limited (ASX: RHC) is one of the highest-quality and defensive businesses on the ASX.
Another idea could be funeral business InvoCare Limited (ASX: IVC), sadly a certain amount of people die each year and Australia’s ageing population means that more people will pass away on average each year for many decades to come.
If safety is your goal then I think it’s important to only invest in truly safe ASX businesses, not just ones that may somewhat be safe. At the current prices I would go for Soul Patts shares.
These great ASX shares are also considered by our experts as high-quality defensive businesses.
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Motley Fool contributor Tristan Harrison owns shares of InvoCare Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited, Transurban Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Brickworks, InvoCare Limited, and Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.