Finding defensive ASX dividend shares on our own stock market can be a little tricky. Sure, there are plenty of very popular dividend shares on the ASX to choose from.
But the likes of Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), Westpac Banking Corp (ASX: WBC), and Woodside Energy Group Ltd (ASX: WDS) cannot be called defensive shares.
In fact, these businesses could be described as notoriously cyclical. Just take a look at how these companies' dividends (and share prices) tend to do during a recession.
So what are the best defensive ASX dividend shares you can get? Where do we even start looking? Well, investment bank and broker Morgan Stanley has some ideas. It recently released an article for its American clients where it discusses this very topic.
The broker named four sectors that it recommends its investors look to for defensive dividends.
What are the best sectors for defensive ASX dividend shares?
The first is industrials. Morgan Stanley tells investors that "we favor defense companies that are likely to benefit from strong cash flows and bipartisan policy support".
Some ASX examples of defensive dividend payers in this space include Cleanwaway Waste Management Ltd (ASX: CWY), Transurban Group (ASX: TCL), and Brambles Limited (ASX: BXB). Waste management, transport, and packaging are all areas that tend to be very stable during all kinds of economic weather.
Another area Morgan Stanley points to is healthcare. Healthcare is another indisputably defensive sector, given its importance to society. We are all going to spend money on healthcare services if we need to, after all. It also remains a key budget priority of both state and federal governments around the country.
According to the broker:
This sector offers attractive portfolio-diversification benefits, having outperformed the [US] market by an average of 13 percentage points over the last four recessions. At the same time, exposure to innovative trends like genomics and medical AI may make the sector attractive to investors seeking to play both offence and defence.
Some reputable dividend payers in this sector on the ASX include Ramsay Health Care Limited (ASX: RHC), Medibank Private Ltd (ASX: MPL), NIB Holdings Ltd (ASX: NHF), and (of course) CSL Limited (ASX: CSL).
Consumer staples stocks and international shares
Then we have consumer staples stocks. Consumer staples companies are those that produce or sell most of life's everyday essentials. This includes food, drinks, and other household items.
Morgan Stanley argues that "this sector can play a valuable role in a defensive investing strategy, offering the potential for stable earnings, growing dividends and lower volatility".
ASX consumer staples shares would include the big players like Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL), but also the likes of Bega Cheese Ltd (ASX: BGA), Treasury Wine Estates Ltd (ASX: TWE), and Endeavour Group Ltd (ASX: EDV).
Finally, Morgan Stanley identifies 'global dividend payers' as an area investors should focus on for defensive dividends. Here's some of what was said:
Looking beyond the U.S., global dividend payers could offer greater portfolio diversification as international equities show continued momentum in recent performance relative to U.S. stocks. What's more, international stock dividends tend to be higher, given that for many years U.S. companies have instead been prioritizing stock buybacks that help boost share prices.
Obviously, the ASX is home to many shares that fit this bill. But let's think internationally too. Many markets outside the ASX also offer the opportunity for large dividends. The United Kingdom is one example.
The UK counts the likes of Shell, HSBC, Unilever, and Diageo as some of its top shares by size. They are all healthy dividend payers too. ASX investors can easily access the British markets using an exchange-traded fund (ETF) like the BetaShares FTSE 100 ETF (ASX: F100).
There are also ETFs that will give ASX investors access to some of the US's best dividend stocks. One such example is the BetaShares S&P 500 Yield Maximiser (ASX: UMAX).
