Safe Stocks to Buy in Canada for May 2023

These three Canadian stocks would be ideal in an uncertain environment, given their solid underlying businesses and healthy growth prospects.

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The fear of the contagion risk in the United States regional banking sector has reignited ahead of the Federal Reserve’s decision, dragging the global equity markets down. Yesterday, the Canadian benchmark index, S&P/TSX Composite Index, fell by 1%. Economists predict a mild recession in the United States later this year. So, given the uncertain outlook, here are three safe Canadian stocks you can buy to strengthen your portfolio.

Dollarama

Dollarama (TSX:DOL) is a Canadian retail store chain that sells consumable products and general merchandise at attractive prices, thus making it an excellent defensive bet. Meanwhile, it has also delivered impressive returns of 585% over the last 10 years at a CAGR (compound annual growth rate) of around 21%. Its strong financials amid aggressive expansion and efficient capital utilization appear to have driven the company’s stock price higher.

The company has added around 70 stores per year for the last 10 years. Despite its aggressive expansion, the company has improved its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin from 19.1% in 2013 to 30.1%, which is encouraging. Meanwhile, I expect the uptrend in the company’s financials to continue, as its management hopes to increase its store count from 1,486 to 2,000 by 2030. Along with its expansion initiatives, Dollarama focuses on improving its direct sourcing abilities to offer its products at attractive prices.

So, considering its solid underlying business and healthy growth prospects, I believe Dollarama would be an excellent buy in this uncertain outlook.

Waste Connections

Waste Connections (TSX:WCN) is a waste management company that operates in secondary and exclusive markets across the United States and Canada. It is expanding its footprint through strategic acquisitions. Since 2011, the company has made acquisitions worth over US$13.5 billion. Despite these acquisitions, the company has maintained its adjusted EBITDA margin of around 30%, which is encouraging. Supported by its strong financials, the company has delivered impressive returns of approximately 450%, at a CAGR of 18.6%.

Waste Connections has provided solid guidance for this year. Amid favourable pricing and contributions from acquisitions, the company’s management projects its top line to grow by 11.6%. Its adjusted EBITDA margin could expand by 30 basis points to 31.1%. So, considering the essential nature of its business and its growth initiatives, Waste Connections would be an ideal addition to your portfolio.

Fortis

Another excellent defensive bet is Fortis (TSX:FTS), which operates 10 regulated utility businesses that generate stable and predictable cash flows irrespective of the economic outlook. These solid cash flows have allowed the company to raise its dividend for 49 consecutive years. Its yield for the next 12 months currently stands at a healthy 3.73%.

Meanwhile, Fortis has planned to invest $22.3 billion over the next five years, with $5.9 billion on cleaner energy. With these investments, the company’s management expects to grow its rate base at a CAGR of 6.2%. The expanding rate base could boost its cash flows, thus allowing the company to maintain its dividend growth. Meanwhile, the company’s management hopes to raise its dividends by 4-6% annually through 2027. So, given its risk-free, regulated utility businesses and growth prospects, Fortis would make an ideal buy in this volatile environment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

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