The Canadian equity markets had made a bright start to this year, with the S&P/TSX Composite Index rising 4.3% in the first two months. However, amid a solid labour market, many economists expect the Federal Reserve of the United States to raise interest rates by 50 basis points in their next meeting. Higher interest rates could hurt global growth. So, I expect the equity markets to remain volatile in the near term.
Given the volatility, investors should look to add companies that are fundamentally strong and less susceptible to market volatility to their TFSA (Tax-Free Savings Account), as capital erosion could lower the contribution room of their TFSA. Meanwhile, here are my three top Canadian picks, which can strengthen your portfolios.
Waste Connections
Waste Connections (TSX:WCN) collects, transfers, and disposes of non-hazardous solid wastes. Given the essential nature of its business and strategic acquisitions, the company has delivered a solid performance over the last 10 years by providing a total shareholder return of over 523%. Last year, the company’s revenue grew by 17.2% amid continued strategic acquisitions, solid operational execution, and favourable pricing. The company overcame inflationary pressure to drive its adjusted EPS (earnings per share) by 18.3%.
Additionally, Waste Connections’s management has provided solid 2023 guidance, with its revenue projected to grow by 11.6% amid strong pricing and contributions from its recent acquisitions. Also, the management hopes to increase its net income by 15%. The company has raised its dividend at a CAGR (compound annual growth rate) of 15% since 2010, while its forward yield stands at 0.6%. So, considering its solid underlying business and healthy growth prospects, I believe Waste Connections would be an ideal addition to your TFSA.
BCE
BCE (TSX:BCE), one of Canada’s three top telecommunication companies, is another excellent stock to add to your portfolio in this volatile environment. The demand for internet services is growing amid digitization. Meanwhile, the company has invested around $14 billion over the last three years to expand its 5G and broadband networks. As of December 31, the company had expanded its 5G service to cover 82% of Canadians and had completed 80% of the planned broadband internet buildout program.
These growth initiatives could expand BCE’s subscriber base and drive its financials. The company’s management projects its 2023 revenue to grow by 1-5% while its adjusted earnings before interest, taxes, depreciation, and amortization could rise by 2-5%. BCE has increased its dividend by over 5% for the previous 15 years, with its forward yield at 6.44%. Further, it trades at an attractive NTM (next 12-month) price-to-sales multiple of 2.2, making it an attractive buy.
Fortis
With 93% of its business involved in low-risk transmission and distribution business and 99% of its assets protected through long-term agreements, Fortis (TSX:FTS) has performed consistently over the last 20 years while delivering an average total shareholders return of 11.3%.
Meanwhile, the company has committed to invest around $22.3 billion from 2023 to 2027, with $5.9 billion on clean energy. These investments could grow the company’s rate base at a CAGR of 6.2% to $46.1 billion by the end of 2027. The company’s efficient operations have allowed it to maintain its controllable operating cost inflation at a CAGR of 2% for the last five years, which is encouraging.
Further, Fortis has raised its dividends consistently for the previous 49 years, with its yield for the next 12 months at 4.19%. Given its growth prospects, the company’s management hopes to raise its dividends by 4-6% annually through 2027. Meanwhile, amid the recent pullback, Fortis’s valuation has declined to attractive levels, with its NTM price-to-earnings multiple of 18.3.
