Central banks worldwide increase interest rates to tame or slow down inflation. The Bank of Canada (BoC) recently hiked interest yet again on July 12, 2023, to hit a benchmark rate of 5%.
Rising interest rates create headwinds for stocks and headaches for investors. Fortunately, some stocks are safe options, because their businesses perform better or benefit in a high interest rate environment.
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Increased sales and earnings
There were seven rate increases last year, yet discount retailer Dollarama (TSX: DOL) reported impressive financial results in fiscal 2023. In the 12 months that ended January 29. 2023, sales and net earnings rose 16.7% and 20.9% year over year to $5.05 billion and $801.8 million.
In the first quarter (Q1) of fiscal 2024, the top and bottom lines increased 17.1% and 23.6% to $1.29 billion and $179.8 million compared to Q1 fiscal 2023. The $24.25 billion retail chain opened 65 and 21 stores in the previous fiscal year and the most recent quarter, respectively. Dollarama targets 2,000 stores in Canada by 2031.
At $85.59 per share (+8.34% year to date), this consumer defensive stock pays a modest but super-safe 0.33% dividend.
Strong sales momentum
Restaurant Brands International (TSX: QSR) had a solid start to 2023, as evidenced by the year over year (Q1 2023 versus Q1 2022) systems-wide sales growth (Q1 2023 versus Q1 2022) of all four brands. The $45.11 billion quick-service restaurant company owns and franchises Burger King, Tim Hortons, Popeyes Louisiana Kitchen, and Firehouse Subs.
The net income in the same quarter increased 2.6% to US$277 million from a year ago. Its chief executive officer (CEO) Joshua Kobsa said the top-line sales momentum translated into bottom-line growth for the franchisees and RBI. Management hopes the renewed consumer interest in Burger King and Tim Hortons will drive earnings further.
As of this writing, investors enjoy a market-beating 15.82% year-to-date return. At $99.80 per share, the restaurant stock pays a decent 2.91% dividend.
Outperforming small-cap bank stock
Canadian Western Bank (TSX: CWB) isn’t one of the Big Five, but it outperforms the giants (+7.86% year to date). At $25.30 per share, you can partake in the lucrative 5.24% dividend. But is the dividend safe?
Besides the low 38.07% payout ratio, this $2.44 billion bank is a Dividend Aristocrat owing to 31 consecutive years of dividend increases. It’s the longest dividend-growth streak in the banking sector.
In the first half of fiscal 2023, total revenue and common shareholders’ net income increased 2% to $537.3 million and $164.4 million. For fiscal 2023, CWB expects high-single-digit loan growth, double-digit branch-raised deposits growth, and will continue to provide full service to business owners.
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Robust backlog
Stantec (TSX: STN) operates in the engineering & construction industry. The $9.74 billion company capitalizes on infrastructure and facilities project opportunities globally that serve as a support system for economic growth.
In Q1 2023, net revenue and net income climbed 16.9% and 44.8% year over year to $1.54 billion and $64.9 million. Stantec expects continued net revenue expansion in 2023 due to the robust $5.9 billion backlog. Also, public and private investments are strong tailwinds for the business.
Stantec is up nearly 36% year to date ($87.74 per share) and pays a modest 0.90% dividend.
Safe picks
The four stocks in focus, particularly Canadian Western Bank, remain safe investment prospects, even with the recent BoC policy rate hikes.
