Although growth stocks seem to be in great shape for 2023, markets are not ready for a full-fledged bull rally just yet. Uncertainties on the inflation and rate hike front, and recession fears could fuel more volatility in the markets. Meanwhile, it would be prudent to sit with safe, high-quality TSX stocks with a proven track record. Here are three of them.
Canadian Utilities
Utility stocks are back in the game since last month amid expectations of slowing rate hikes and an impending recession. Interest rates and utility stocks generally trade inversely to each other. So, given this macro backdrop, Canadian Utilities (TSX:CU) is one of the top defensive names on the TSX.
Canadian Utilities earns almost all of its earnings from regulated operations. This facilitates unmatchable earnings and dividend stability in almost all economic cycles. Note that CU has grown its net income by a mere 1.5% compounded annually in the last 10 years. That’s way too low compared to broader markets.
However, such dull growth has enabled stable dividend growth over the years. As a result, it has raised shareholder payouts for the last 50 consecutive years, the highest for any Canadian-listed company. CU stock yields a decent 5%, marginally higher than peer TSX utility stocks.
CU stock has returned an average of 7% annually in the last five years. That’s not too attractive, but those dividends stand tall in uncertain markets.
North West Company
Boring is generally interesting in long-term investing. That’s true for a retailer like North West Company (TSX:NWC). North West Company is nearly a $2 billion company, catering to the rural population in Northern Canada, Alaska, the South Pacific, and the Caribbean. The retailer serves food, household items, and lifestyle needs.
Though it covers a large geographical area, the company caters to small communities. As a result, the product offering is tailored to the size and need of the individual market. It also operates a cargo and passenger airline company called North Star Air to gain efficiencies and improve its logistics network.
While that seems like a not-so-jazzy business, it has generated solid shareholder wealth in the long term. NWC stock has returned 12% in the last five years and 10% annually in the last decade. The stock yields a decent 4% at the moment.
Its net income has grown by 10%, compounded annually in the last decade. Another key strength is its margin stability. The company has seen operating margins averaged at around 10%, a rare feat in the retail industry.
Canadian Natural Resources
Canada’s biggest energy producer Canadian Natural Resources (TSX:CNQ) is another attractive investment in the current environment. CNQ stock is relatively riskier and more volatile than the above two but much less risky compared to its peer TSX energy stocks. Plus, it offers an appealing total return proposition against the risk. It has returned 14% so far this year and 350% in the last three years.
The oil and gas major’s superior earnings growth prospects and sound financial position stand tall in the industry. It reported free cash flows of $14.3 billion last year, indicating handsome growth of 43% year over year. CNQ offers a handsome dividend that yields 5%. Notably, it has increased shareholder payouts for the last 23 consecutive years.
The earnings visibility and improving debt position make CNQ stock an attractive bet. Management plans to allocate 100% of its free cash flows to shareholder returns. That opens up a possibility of dividend hikes and aggressive share buybacks, and ultimately, higher shareholder returns.
