Earlier this week, the United States Federal Reserve raised its benchmark interest rates by 0.25% to 5.50% — the highest in 22 years. Although inflation has moderated, it is still higher than the central bank’s guidance of 2%. So, the central bank’s chairman, Jerome Powell, stated that the Federal Reserve would take data-driven decisions on interest hikes in the coming months.
A prolonged period of a high interest rate environment could hurt economic growth, thus impacting the equity markets. So, here are five reliable companies you can buy to strengthen your portfolio.
Dollarama
Dollarama (TSX: DOL) operates 1,507 stores across Canada, with around 85% of Canadian households having a store within 10 kilometres of their surroundings. It focuses on direct sourcing, thus eliminating intermediatory expenses and offering its products at attractive prices to customers. Thanks to its compelling value offerings and extensive presence, the company continues to drive its same-store sales.
It has a comprehensive expansion plan of adding around 60-70 new stores each year, thus raising its store count to 2,00 by 2031. Also, given its low capital intensity and high return on investment, I believe Dollarama would be an excellent buy, even in this high-interest-rate environment.
Waste Connections
Second on my list is Waste Connections (TSX: WCN), which collects, transfers, and disposes of non-hazardous solid wastes. The company operates primarily in exclusive or secondary markets. It is expanding its footprint across the United States and Canada through strategic acquisitions. Since 2006, the company has made acquisitions worth $24 billion.
Amid these acquisitions and strong performances, the company has delivered impressive returns of 490% over the previous 10 years at a compound annual growth rate of 19.4%. Meanwhile, given the essential nature of its business, healthy growth prospects, and strong balance sheet, I expect the uptrend in the company’s financials to continue.
Pizza Pizza Royalty
Pizza Pizza Royalty (TSX: PZA) operates Pizza Pizza and Pizza 73 brand restaurants. It has adopted a highly franchised business, collecting royalties from its franchisees based on their sales. So, given its asset-light model, I believe rising interest rates will not have much of an impact on its financials.
Meanwhile, with the reopening of dining spaces and non-traditional restaurants, the company continues to post strong same-store sales, driving its royalty pool income. Amid healthy cash flows, the company has raised its monthly dividend twice in the previous two months. It pays a monthly dividend of $0.075/share, with its yield currently at 5.96%. Considering all these factors, I am bullish on Pizza Pizza Royalty.
Bank of Nova Scotia
My fourth pick is Bank of Nova Scotia (TSX: BNS). Rising interest rates could expand the spread between the borrowing and lending rates, thus improving its net margins. However, a prolonged high-interest rate environment could slow down economic growth, thus increasing defaults. Meanwhile, BNS has strengthened its liquidity position amid the double-digit customer deposit growth in its recently reported second quarter. Its liquidity coverage ratio also improved from 122% to 131% during the quarter, which is encouraging.
The company also raised its quarterly dividend by $0.03/share after reporting its second-quarter earnings on May 24. The raising of dividends by the management depicts its confidence in the company’s financials. Amid the recent weakness, the company trades at an attractive next 12-month price-to-earnings multiple of 8.9, making it an attractive buy.
Savaria
Savaria (TSX: SIS), which provides accessibility solutions, is my final pick. The company continues to deliver impressive results, with its revenue and earnings per share growing by 15.3% and 12.5%, respectively. The company’s financial position looks solid, with $135 million in available funds. At the end of its first quarter, the company’s net debt stood at $358.9 million.
Meanwhile, its net debt to adjusted earnings before interest, tax, depreciation, and amortization stood at 2.83, which is acceptable. For this year, Savaria’s management has set an optimistic guidance, with its top line set to grow by 8-10%. It also pays a monthly dividend of $0.0433/share, with its yield currently at 3.11%. Considering all these factors, I am bullish on Savaria, despite rising interest rates.
