Kevin Bond, 47, said he possessed it only for self-defence after his life on the streets turned violent against him.
He was found with the axe in Dene Street, Pallion, on Friday, November 19, South Tyneside Magistrates’ Court heard.
Bond, who has since found accommodation in Highgate Road, Pennywell, did not wield it or threaten, prosecutor Paul Anderson said.
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Mr Anderson added: “He’s walking along the street with what is described as a bit of a rusty axe.
“He is asked to put it down by the police, which is what he does.
“He said that he had been sleeping rough and had the axe for his own protection. He also had cannabis on him for personal use.”
Bond pleaded guilty to possession of an offensive weapon in public and possession of class B cannabis.
Gerry Armstrong, defending, said Bond had picked up the axe after finding it and a Probation Service report revealed his client's “tragic circumstances”.
He told the court: “Possession of a weapon is a matter which is taken very seriously by the courts, and quite rightly so.
“You’ve seen the nature of the offence. There’s nothing in the police statement to contradict that he found it.
“By this time, he had been living rough for many months and had been the victim of several assaults and threats.
“His sister helps him, and his friends sometimes give him somewhere to stay but more often than not he stays in derelict houses.
“It’s very clear that when you read this report that there are very tragic circumstances.
“I take comfort in this that his offending is centred around accommodation and drug issues. He would never have used the axe.”
Magistrates sentenced Bond at a two-year community order, with a requirement of 30 days of rehabilitation work with the Probation Service.
The order also includes a requirement for him to complete a nine-month drug rehabilitation programme.
Bond was fined £40, with a £95 victim surcharge. There were no court costs imposed by the bench.