Woolworths Group Ltd (ASX: WOW) shares offer plenty of positives for investors focused on durable businesses. But, I wouldn't call the business the best ASX defensive stock that Aussies can buy.
There are other ASX shares that appeal to me because they offer even more defensive earnings and/or better growth potential.
Woolworths is best known as a supermarket retailer, but it also has a number of other businesses, including BIG W, PETstock, and foodservice (for commercial customers like restaurants).
The high inflation period between FY22 and FY24 saw Woolworths' sales accelerate, and that helped the company's bottom line, too. But inflation has now calmed, and Woolworths is now cutting its prices (and probably hurting the margins too). It can still grow over the long term, but there are other ASX defensive stocks I would rather buy first, like the two below.
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Propel Funeral Partners Ltd (ASX: PFP)
Propel is the second largest funeral provider in Australia and New Zealand. As the saying goes, there's only two things certain in life – death and taxes. And we can't invest in the Australian Taxation Office (ATO).
The company's revenue is benefiting from both funeral volume growth and an increase in the average revenue per funeral.
Australia's growing and ageing population is expected to lead to a steady increase in funeral volumes in the coming years. It's a morbid idea, but it does have long-term tailwinds.
According to Propel, the number of deaths is expected to increase at a compound annual growth rate (CAGR) of 2.8% between 2025 and 2035, and then grow by an average of 2.4% annually between 2036 and 2045. So, over time, I'm expecting Propel's funeral volumes to grow, boosted by acquisitions.
The average revenue per funeral has increased at a CAGR of 3.1% between FY15 to the first half of FY25, providing a good offset to inflation.
Thanks to the power of compounding, I think this ASX defensive stock can generate much more profit in five and ten years.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
I think Soul Patts is one of the most defensive companies because it has a diversified portfolio spread across a wide number of industries.
Some of the sectors in which it invests include telecommunications, resources, industrial property, building products, financial services, credit, agriculture, swimming schools, electrification, funds management, and so on.
It has built its portfolio to be focused on resilient assets that provide defensive cash flow, and most of them are largely uncorrelated from each other.
Its portfolio is growing thanks to the investments themselves growing, and the company also regularly adds to its holdings by making additional asset purchases with excess cash flow (after it has paid its dividend).
Pleasingly, this ASX defensive stock has increased its annual dividend extremely consistently, while Woolworths shareholders have suffered a few declines. Soul Patts has grown its annual ordinary dividend every year for 27 years in a row.
This business currently offers a grossed-up dividend yield of around 3.5%, including franking credits, at the time of writing.
