The equity markets have turned volatile amid growing geopolitical tensions, rising oil prices, and fear of delay in interest rate hikes amid solid wage data in the United States. Oil prices have increased this year amid voluntary product cuts, the Middle East conflict, and rising tensions between Israel and Iran. Higher oil prices could drive inflation, thus delaying interest rate cuts. Considering these factors, I expect equity markets to remain volatile in the near term. Amid the growing volatility, investors should look to strengthen their portfolios with these three quality defensive stocks.
Dollarama
Dollarama (TSX:DOL) is a Canadian retailer that offers a wide range of consumer products at attractive prices due to its superior direct-sourcing ability and efficient logistics system. So, the company has been witnessing healthy footfalls even during the challenging macro environment, thus driving its same-store sales. The company’s same-store sales grew by 12.8% in the last fiscal year. Besides, it added 65 new stores, thus driving its sales by 16.1% to $5.1 billion. Amid topline growth and share repurchases, its diluted EPS (earnings per share) increased by 29% to $3.56.
Meanwhile, Dollarama has planned to increase its store count to 2,000 by fiscal 2031. Given its sales ramp-up and a low payback period of less than two years, the expansion could boost its financials in the coming years. Further, the company is optimizing its queue lines and check-out processes and expanding its digital footprint to enhance customer convenience, which could boost its same-store sales growth. Globally, its subsidiary, Dollarcity, where Dollarama owns a 50.1% stake, plans to expand its store network across Latin America by adding 328 stores over the next five years.
Moreover, Dollarama has raised its dividends for 13 consecutive years. Considering all these factors, I believe Dollarama would be an ideal buy to strengthen a portfolio.
Waste Connections
Another defensive stock that has been delivering consistent returns over the last 10 years would be Waste Connections (TSX:WCN), a solid waste management company. In the previous 10 years, it has delivered around 570% returns at an annualized rate of 20.9%, outperforming the broader equity markets. Meanwhile, the company reported an impressive first-quarter performance last week, with its revenue and adjusted EPS growing by 9.1% and 16.9%. Besides, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin expanded by 160 basis points to 31.4%.
Continuing its acquisitions, Waste Connections acquired 30 energy waste treatment and disposal facilities from Secure Energy Services in February. Given its solid financial position and free cash flows, the company is well-equipped to continue with its acquisitions. Further, it is also expanding its renewable natural gas and resource recovery facilities and hopes to invest around $150 million this year. Given the essential nature of its business and growth prospects, I believe Waste Connections would be an excellent buy in this volatile environment.
Fortis
Fortis (TSX:FTS) is an electric and natural gas utility company with a presence across Canada, the United States, and the Caribbean. Given its capital-intensive business, the company has been under pressure over the last 12 months due to rising interest rates. However, the company reported a healthy first-quarter performance yesterday, with its adjusted EPS growing by 2.2%. After making a capital expenditure of $1.1 billion in the first quarter, the company is on track to invest $4.8 billion this year.
Meanwhile, the company has planned to invest around $25 billion from 2024 to 2028, expanding its rate base at an annualized rate of 6.3% to $49.4 billion. Amid these growth initiatives, Fortis’s management expects to raise its dividends at an annualized rate of 4 to 6% through 2028. The company could also benefit from future interest rate cuts, as the Federal Reserve could cut its benchmark interest rates later this year. So, given its low-risk utility business and healthy growth prospects, I believe Fortis would be a good buy despite its near-term weakness.
