Macroeconomic uncertainties don’t seem to be ending soon. Despite a strong labour market, rapidly rising interest rates amid high inflationary pressures could lead to a moderate recession in the near term. Fears of a recession could potentially extend the Canadian stock market turmoil, which already seems to be testing investors’ patience.
Such challenging market environments are a great reminder for investors to add some safe stocks with low volatility to their portfolios. In this article, I’ll talk about one such safe TSX stock, Dollarama (TSX:DOL), and highlight the key fundamental strengths that make it worth buying now to hold forever.
Dollarama has been one of the most attractive TSX stocks for defensive investors in the last decade, as it has outperformed the broader market by a huge margin. Between 2013 and 2022, it delivered an outstanding 706% positive returns by rallying in nine out of these 10 years. By comparison, the TSX Composite benchmark delivered only 56% positive returns during the same period.
The Montréal-headquartered discount store chain operator currently has a market cap of $23.3 billion, as its stock trades at $82.32 per share with slightly more than 4% year-to-date gains, despite broader market turmoil.
A safe Canadian stock with a robust business model
When I call any stock “safe,” I focus primarily on that stock’s ability to thrive even in challenging economic conditions and turbulent markets. To give you a recent example, in 2020, when COVID-19-driven restrictions started affecting businesses across sectors, Dollarama’s business remained largely unaffected by these restrictions. In fact, the sales of its affordable essential products surged significantly that year, accelerating its financial growth. This example justifies why DOL stock has been able to deliver outstanding returns in the last decade.
The strength of its resilient business model can also be seen in its long-term financial growth trends. In the five years between its fiscal year 2018 and 2023 (ended in January), Dollarama’s sales jumped 55% from $3.3 billion to $5.1 billion. During this period, the company’s store network also expanded significantly, which helped its earnings increase by 82% from $1.52 per share to $2.76 per share.
Last year, high inflationary pressures and other macroeconomic challenges affected the profitability of most businesses. Nonetheless, Dollarama’s adjusted net profit margin in 2022 expanded to 15.9% from 15.3% a year ago. Despite all the challenges, the company also expanded its store network in 2022 by opening 65 net new stores.
It’s true that if a stock has performed exceptionally well in the past, it doesn’t necessarily mean that it will continue to do so in the future as well. That said, Dollarama’s ability to maintain stability and growth in a volatile economic condition, solid profit margins, and consistently growing store network should continue to support its financial growth in the years to come. Given such a strong fundamental outlook, DOL stock could be a great addition to a defensive investor’s portfolio who doesn’t want to worry about day-to-day market news and seeks to build wealth over the long term.