When the economic outlook is uncertain for the ASX share market and the economy as a whole, it's understandable to want to invest in businesses with defensive earnings and inflation protection.
If a business' earnings are relatively stable and predictable, then the share price may be more resilient during times like this. In fact, if inflation does pick up, then the following companies could see their revenue (and earnings) growth accelerate.
I like the three ASX shares below for their defensive earnings.
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Coles Group Ltd (ASX: COL)
Food (and liquor) retail seems like a very defensive sector, in my view. Food is an essential product, and Coles has significant scale advantages compared to nearly every other business it's competing against in Australia. I expect customer demand will hold up in the coming months.
Coles has come under pressure for how the last inflationary period played out. But I think the company will have learned lessons and will handle inflation a little differently, while largely protecting its margins.
The company's sales and earnings continue to rise, helping fund larger dividend payments.
With its impressive product range of own-brand items and the new advanced warehouses, the company will continue unlocking a higher profit margin.
I expect Coles' earnings will be higher in two years, which is the minimum that I think investors should focus on.
Telstra Group Ltd (ASX: TLS)
Telstra provides subscribers with a market-leading mobile network with the widest coverage and the most valuable spectrum assets.
The ASX telco share's offering of allowing Australians to connect to the internet with their devices seems to be essential these days. Aussies use the internet for a lot of things, like entertainment, communication, learning, work, shopping, banking, connecting with government services, and plenty more.
Over the last few years, Telstra has seen its mobile subscriber numbers and average revenue per user (ARPU) steadily climb, with the ASX telco share implementing inflation-linked price increases.
If inflation were to pick up, I'd expect Telstra to implement more price rises. The operating leverage can come through as it spreads its costs across more users. I'm also excited to see the ongoing progress of wireless broadband for customers, meaning it's capturing the margin that currently goes to the NBN.
Additionally, the business hiked its dividend by more than I was expecting, which I think bodes well for future shareholder payouts in upcoming results.
APA Group (ASX: APA)
Energy is one of the most important aspects of the Australian economy – households and businesses alike need energy throughout the year.
APA's gas pipeline network accounts for half of the country's gas consumption. Its gas capacity is expected to grow in the coming years as the business invests in adding pipelines to increase the ability to take gas from sources of supply to where it's needed.
I think the ASX share will continue seeing cash flow growth as it expands its portfolio across a number of areas, including renewable energy, gas-powered energy generation, and electricity transmission.
As a bonus, the business has hiked its annual distribution every year for the past two decades. At the time of writing, APA offers a FY26 distribution yield of 6.3%.
The business offers inflation protection because a large majority of its revenue is linked to inflation. While higher interest rates may be detrimental to APA's asset value, the increase in revenue is a useful boost for long-term earnings.
