1 Defensive TSX Stock I’d Buy Before More Market Volatility

Volatility has a funny way of reminding investors what they actually own. When markets climb, growth stories can look exciting. When they wobble, steady cash flow suddenly gets a lot more attractive. That’s where defensive stocks come in. The best ones usually provide essential services, pay reliable dividends, and keep investing through good markets and bad. These may not always shoot higher overnight, but they can help investors sleep better when headlines get loud.

ACO

ATCO (TSX:ACO.X) is one TSX stock that fits that defensive bucket nicely. The Calgary-based company has a wide mix of businesses across utilities, energy infrastructure, modular structures, housing, logistics, and defence services. Its biggest strength comes from essential infrastructure. Through Canadian Utilities and other subsidiaries, ATCO operates electricity and natural gas transmission and distribution assets in Canada and Australia. People still need heat, power, housing, and infrastructure support, even when the market throws a tantrum.

The company also had a busy year. ATCO stock continued work on major utility infrastructure projects, including the Yellowhead Pipeline Project and the Central East Transfer-Out transmission project. Yellowhead could become a major growth driver, with an estimated cost of $2.9 billion and construction expected to start in 2026, pending final approvals. ATCO stock also acquired Northstone Power in Alberta and won contracts across modular housing, data-centre construction, mining, education, and defence. That mix gives it more growth levers than investors might expect from a defensive name.

Into earnings

The earnings picture also supports the case. In 2025, ATCO stock reported adjusted earnings of $518 million, or $4.61 per share. That was up from $481 million, or $4.29 per share, in 2024. Fourth-quarter adjusted earnings also rose to $154 million, or $1.37 per share, compared with $146 million, or $1.30 per share, the year before. Those numbers show a business still moving in the right direction.

Investors should note one wrinkle, however. ATCO’s IFRS earnings fell sharply in 2025 because of non-cash impairments and write-offs, mainly tied to its Alberta renewables portfolio and some other assets. That’s a real risk, and shows why even defensive stocks need scrutiny. Still, adjusted earnings give a better look at the ongoing business. Meanwhile, ATCO stock recently traded with a market cap near $7.7 billion and a dividend yield close to 3%. Using adjusted earnings, ATCO stock trades at roughly 15 times 2025 earnings, which looks fair for a defensive utility-linked company with visible capital growth.

Looking ahead

The future outlook comes down to rate base growth, infrastructure demand, and steady dividends. ATCO stock’s regulated utility capital plan points to about $12 billion in spending from 2026 through 2030. Management says that could lift the consolidated mid-year rate base from $16.6 billion in 2025 to $23.2 billion by 2030. For a utility-heavy business, rate base growth often feeds future earnings growth. It’s not instant gratification, but exactly the kind of slow-and-steady engine defensive investors tend to like.

ATCO stock also fits a volatile market as it doesn’t rely on one narrow story. It has regulated utilities, energy infrastructure, housing, defence support, and international operations. That diversification can soften the blow when one area struggles. The risks include regulatory delays, higher financing costs, project execution issues, and more impairments if power markets stay difficult. But the company’s long operating history, essential-service exposure, and dividend record still give it a sturdy profile.

Bottom line

Market volatility can make investors chase safety after prices have already moved. ATCO stock offers a way to think ahead instead. It’s not the flashiest TSX stock, and that’s fine. Defensive investing doesn’t need fireworks. It needs durable cash flow, useful assets, and enough growth to keep income rising. And what’s more, ATCO stock offers a solid income stream even with $7,000 at these levels.

COMPANYRECENT PRICENUMBER OF SHARESANNUAL DIVIDENDANNUAL TOTAL PAYOUTFREQUENCYTOTAL INVESTMENTACO.X$68.00102$2.05$209.10Quarterly$6,936.00

In short, ATCO stock checks off the best boxes, making it one stock I’d watch closely before the next rough patch hits.

The post 1 Defensive TSX Stock I’d Buy Before More Market Volatility appeared first on The Motley Fool Canada.

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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.