Interest rates have consistently increased over the past year, as the Canadian central bank implemented a tight monetary policy to tame inflation. While rising rates have made equity unattractive, the moderation in inflation suggests that the central bank could ease its aggressive stance. Whether interest rates will come down or not remains a wait-and-watch story. Meanwhile, investors can bet on relatively safe investments to generate stable returns amid all market conditions.
Against this background, I’ll discuss three fundamentally strong Canadian stocks that are relatively safe and offer decent capital gains and dividend income, regardless of the economic situation.
Dollarama
First up is Dollarama (TSX:DOL). This value retailer offers a wide variety of products at multiple and low fixed price points, making it a safe stock to buy even in a rising interest rate environment. It’s worth mentioning that Dollarama’s sales and earnings have consistently increased over the past decade.
Meanwhile, its profitable growth has enabled the company to boost its shareholders’ returns through higher dividend payouts.
Thanks to its solid financial performance, Dollarama stock has consistently outperformed the broader markets by a wide margin. Its stock has risen by more than 93% in the last three years, while it’s increased by over 16% over the past year.
Looking ahead, its value pricing, a broad assortment of everyday products, store stores base in the domestic market, and growing global footprint position it well to deliver solid sales and earnings. Meanwhile, its loyal customer base and growing digital footprint bode well for growth.
Fortis
Speaking of safety, investors should consider investing in Fortis (TSX:FTS) stock. The company operates 10 regulated utility businesses that witness stable demand and generates predictable and growing cash flows, making it relatively immune to economic conditions.
Thanks to its low-risk business and growing cash flows, Fortis has increased its annual dividend for 49 consecutive years. Furthermore, its stock remained resilient, despite large swings in the market.
Looking ahead, its $22.3 billion capital plan will enable the company to expand its rate base at a compound annual growth rate (CAGR) of over 6% through 2027. A growing rate base will drive its earnings and future dividend payments.
Its high-quality earnings, growing rate base, and energy transition opportunities augur well for growth. Fortis plans to increase its dividend at a CAGR of 4-6% through 2027. Meanwhile, its defensive business model could continue to offer stability to your portfolio.
Canadian National Railway
Shares of the leading transportation company Canadian National Railway (TSX:CNR) are a no-brainer to add safety to your portfolio and generate healthy capital gains. This rail freight company is a trade enabler. Thus, its services are deemed essential for the economy. Each year, it transports multi-million tons of products throughout North America, which supports its financials and stock performance.
The company’s defensive business model, well-diversified portfolio, improving operational efficiencies, and strong balance sheet position it well to deliver reliable growth and stability in the coming years.
Besides capital gains, investors will likely benefit from the company’s focus on returning cash to its shareholders. Canadian National Railway’s dividend increased at a CAGR of 15% in the last 26 years. Further, its growing earnings base indicates that the company could continue to hike its dividend in the coming years, making it an attractive dividend stock.
