The Canadian equity markets have overcome the impact of the ongoing Russia-Ukraine war and are currently trading close to their peaks. However, the rising inflation and yield curve inversion are causing concerns.
On Monday, the yields of five-year and 30-year treasury bonds inverted for the first time since 2006. Meanwhile, the spread between two-year and the 10-year rate, which traders consider more critical, stood roughly at three basis points on Wednesday. Yield curve inversions are seen as recession indicators, as yield curve inversions have occurred before the recession in the past.
So, given the uncertain outlook, here are my three safe Canadian stocks that investors can buy right now to strengthen their portfolios.
Waste Connections
Waste Connections (TSX: WCN)(NYSE: WCN) provides solid waste management services primarily in secondary or exclusive markets. Due to the essential nature of business, it delivers stable and predictable cash flows irrespective of the state of the economy. Further, the company focuses on strategic acquisitions to expand its geographical footprint and strengthen its position in specific markets.
After acquiring assets worth US$400 million last year, the company has planned to make a capital investment of US$850 million this year. These investments could boost its financials in the coming quarters. Further, lower competitiveness and lower transportation cost, as disposable locations closer to waste generation, have allowed the company to enjoy higher margins. The company has also been raising its dividends at a CAGR of 15% since 2010, with its forward yield currently at 0.5%. So, I believe Waste Connection to be an excellent buy in this volatile environment.
BCE
My second pick is BCE (TSX: BCE)(NYSE: BCE), one of the three top players in the Canadian telecom space. With the growth in e-commerce, remote working, and remote learning, the demand for high-speed internet service is rising. Meanwhile, the company is aggressively investing in expanding its broadband and 5G coverage.
Supported by these growth initiatives, the company added approximately 1.1 million wireless home internet locations last year. For this year, the company hopes to add another 900,000 connections. With its 5G network covering 70% of the Canadian population, the company hopes to expand the service to the rest of the population. These new connections could boost the company’s financials in the coming quarters. Additionally, the company also pays a quarterly dividend, with its forward yield currently at 5.38%. Considering all these factors, I am bullish on BCE.
Fortis
My final pick is Fortis (TSX: FTS)(NYSE: FTS), which operates 10 utility assets serving 3.4 million customers. The company operates a highly regulated business, with regulated assets forming 99% of its asset base. So, the company is largely immune to the economic cycles and generates stable and predictable cash flows. Supported by solid cash flows, Fortis has increased its dividend for the last 48 years. Meanwhile, the company’s forward yield stands at a juicy 3.58%.
Further, Fortis has committed a capital investment of $20 billion for the next five years, which could increase its rate base to $40.6 billion by 2026, representing an annualized growth of 6%. Supported by these investments and solid underlying business, its management hopes to raise its dividends at a CAGR of 6% through 2025. So, I believe Fortis is less susceptible to market volatilities.
