The Canadian equity markets are under pressure this week, with the S&P/TSX Composite Index falling by 1.98%. Last week, the United States Department of Labor announced the consumer price index rose 0.6%, the biggest monthly increase this year. Year over year, the consumer price index increased by 3.7%, higher than analysts’ expectations of 3.6%. An increase in energy, food, and shelter prices drove inflation numbers.
Meanwhile, the Central Bank of the United States has kept its benchmark interest rates unchanged at 5.25-5.5%. However, it cautioned that it could hike interest rates to bring inflation down. With inflation currently above the Federal Reserve’s guidance of 2% and signs of rising further have made investors nervous, thus leading to volatility in the equity markets. So, in this volatile environment, investors can strengthen their portfolios through these three safe TSX stocks.
My first pick is Canadian Utilities (TSX:CU), which is involved in electricity and natural gas transmission and distribution businesses. It is also engaged in electricity generation, energy storage, and industrial water solutions. With a considerable percentage of its financials generated from regulated and low-risk transmission and distribution businesses, its financials are stable irrespective of its economic outlook. The utility company has delivered an annualized total shareholders return of 9.3% for the previous 20 years, outperforming the S&P/TSX Composite Index.
However, CU has been under pressure this year, losing 11.8% of its stock value amid rising interest rates. Meanwhile, the pullback has made it an attractive buy, with its price-to-book multiple standing at 1.6. The company has adopted a three-year capital-investment plan, growing its utility rate base at a CAGR (compound annual growth rate) of 2% through 2025. It is expanding its renewable asset base through acquisitions and new project developments. It also strengthened its financial position by raising around $340 million by issuing debentures.
Meanwhile, CU has an extended history of raising its dividend. It has increased its dividends for 51 previous years, with its forward yield currently at 5.76%.
The growth in remote working and learning and online shopping drives the demand for telecommunication services. The capital-intensive nature of the telecommunication business has created a natural entry barrier for new entrants while expanding the margins for existing players. So, I have chosen Telus (TSX:T), one of the three top players in the Canadian telecom industry, as my second pick.
The company is expanding its fibre and 5G infrastructure to meet the rising demand. At the end of the second quarter, its pure fibre network had reached 3.1 million premises, while its 5G network covered 84% of the Canadian population. Given its continued investments, the expansion would continue, driving its financials.
Supported by solid cash flows, Telus has returned around $24 billion to its shareholders since 2004, with around $18.6 billion in dividends. It currently pays a quarterly dividend of $0.3636/share, with its forward yield at 6.33%. Further, the company’s management hopes to raise its dividends by 7-10% annually through 2025. So, I believe Telus would be a safe bet in this volatile environment.
Waste Connections (TSX:WCN), which collects and transfers solid wastes in secondary and exclusive markets across North America, is my final pick. The company has been expanding its business through strategic acquisitions. Since 2011, it has made acquisitions worth around US$13.5 billion. Supported by its solid underlying business and strategic acquisitions, the company has delivered solid performances, thus delivering returns of above 590% over the last 10 years.
Meanwhile, the company is investing in renewable natural gas and resource recovery facilities and constructing two recycling facilities that could become operational by 2024. Along with these initiatives, the essential nature of its business, continued acquisitions, and favourable rate revisions could boost its financials in the coming quarters. So, I expect the uptrend in Waste Connections to continue, making it an excellent defensive bet.