Recession-Proof Your Portfolio: Top Picks for the Cautious Canadian

Ride out the next economic downturn with these 3 blue chip stocks.

| More on:
Women's fashion boutique Aritzia is a top stock to buy in September 2022.

Source: Getty Images

A recession-proof portfolio is designed to minimize the impact of economic turbulence on overall financial stability. The primary objective is to safeguard your capital and potentially yield modest returns even in the face of challenging economic conditions.

However, it is essential to understand that there’s no such thing as a completely recession-proof portfolio. Yet, you can make your investments more resilient to economic downturns. One effective approach is to prioritize high-quality stocks from defensive sectors, such as consumer staples and utilities, or consider investing in well-established blue-chip stocks.

With this backdrop, let’s explore three Canadian stocks that are fundamentally strong and could help create a recession-resistant portfolio.

Fortis 

Utility giant Fortis (TSX:FTS) could be a solid addition to your portfolio to safeguard capital and generate steady returns. The company operates a low-risk and regulated electric utility business. With a diversified asset base and strong focus on regulated businesses, Fortis generates stable cash flows, offering resilience against market volatility.

Thanks to its resilient business model and predictable cash flows, Fortis boasts a remarkable track record of dividend growth. The utility ranks among Canada’s leading dividend-paying stocks. What stands out is that Fortis has increased its dividend for an impressive 50 years.

Looking ahead, Fortis is well-positioned to generate solid earnings and cash flows, driven by its multi-billion secured capital projects, which will drive its rate base. Fortis’ $25 billion capital plan will enable the company to grow its rate base at a compound annual growth rate (CAGR) of 6.3% through 2028. This, in turn, will expand its earnings base and drive its future dividend payouts. Notably, Fortis expects to grow its dividend by 4-6% annually through 2028. Meanwhile, it offers a yield of 4.2% (based on its closing price of $55.90 on November 8).

Dollarama 

Dollarama (TSX:DOL) is a must-have stock for safety, income, and growth regardless of the economic situation. The retailer owns a defensive business that is growing at a solid pace. Dollarama sells a wide range of products at low, fixed price points. This makes it a favoured destination for budget-conscious shoppers and enables it to drive traffic in all market conditions. 

Thanks to its solid financials, Dollarama stock has consistently outperformed the broader market and has grown at a CAGR of over 21% in the past decade. Moreover, the retailer has consistently increased its dividend during the same period. 

Looking ahead, its focus on value pricing, an extensive network of stores, and a capital-efficient business model will provide a solid foundation for growth. Further, its focus on operational efficiency will cushion its earnings and allow it to enhance its shareholders’ returns through higher dividend distributions. 

Canadian National Railway

Shares of the Canadian National Railway (TSX:CNR) are a no-brainer to generate worry-free capital gains in the long term and add safety to your portfolio. Canada’s leading transportation company plays a crucial role in facilitating trade and shipping millions of tons of goods across North America. Consequently, its services are deemed essential for the economy, making it less susceptible to market volatility.

Thanks to its defensive business model and diversified portfolio, Canadian National Railway generates steady revenues. While the company’s focus on improving operational efficiency supports earnings growth. 

CNR stock has grown at a CAGR of approximately 12% in the past decade. Moreover, it has enhanced its shareholders’ returns through higher dividend payments and share buybacks. Currently, it offers a dividend yield of 2.1%.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway and Fortis. The Motley Fool has a disclosure policy

More on Investing

A meter measures energy use.
Dividend Stocks

Got $5,000? 3 Utility Stocks to Buy and Hold Forever

These three Canadian utility stocks offer steady growth, strong dividends, and long-term wealth. Buy and hold them forever

Read more »

jar with coins and plant
Dividend Stocks

Here Are My Top 2 Undervalued Stocks to Buy Right Now

Do you want some undervalued stocks to buy today? Whether its growth or income, here's a duo that make a…

Read more »

data analyze research
Tech Stocks

2 Under-$5 Hidden Gems Worth Your Attention

Investors need to understand that plenty of penny stocks might be safer compared to several large-cap investors.

Read more »

Caution, careful
Stocks for Beginners

3 Major Red Flags the CRA Is Watching for Every TFSA Holder

The TFSA is an attractive investing tool to earn tax-free investment income. However, beware of these red flags that could…

Read more »

data analyze research
Dividend Stocks

Better Stock to Buy Now: Manulife or CIBC?

Both Manulife and CIBC had a great year last year. It may be smart for investors to wait for a…

Read more »

grow money, wealth build
Dividend Stocks

TFSA Growth Strategy: Turn $350 Weekly Into $100,000

By investing $350 per week in index funds like iShares S&P/TSX 60 Index Fund (TSX:XIU) you can achieve a $100,000…

Read more »

dividend growth for passive income
Dividend Stocks

3 Top Canadian Growth Stocks to Buy Now for Long-Term Growth

Canadian growth stocks can be a great way to create long-term growth, and these are at the top of the…

Read more »

Caution, careful
Dividend Stocks

3 Big Red Flags That Could Trigger a CRA Audit on Your TFSA

TFSA users engaging in business-like activities for profit will trigger a CRA audit.

Read more »