The Canadian equity markets have continued their post-election rally, with the S&P/TSX Composite Index rising 3.4% this month. Investors’ optimism over Donald Trump’s pro-growth policies has increased equity markets. However, the concerns over the global slowdown and the impact of President-elect Trump’s 10% universal tariffs on imports persist. Amid the uncertain outlook, investors can strengthen their portfolios with defensive and high-yielding dividend stocks. Meanwhile, here are my three top picks.
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Waste Connections
Waste Connections (TSX: WCN) is an excellent defensive stock to have in your portfolio due to the essential nature of its business. Last month, the solid waste management company reported an impressive third-quarter performance, with its top line and adjusted EPS (earnings per share) growing by 13.3% and 15.4%, respectively. The price increase, solid waste volume growth, and acquisitions over the previous four quarters drove its sales. Also, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin expanded by 120 basis points to 33.7% amid revenue growth and solid operational execution.
After posting a solid third-quarter performance, WCN’s management has raised its 2024 guidance. The new guidance projects an 11% revenue growth and 15.3% adjusted EBITDA growth. Moreover, the company is witnessing improved employee retention amid innovative employee engagement initiatives. So, the management hopes its financial growth momentum will continue next year. The management projects a mid- to high single-digit revenue growth in 2025, while its adjusted EBITDA could grow in the high single digits. These projections exclude any future acquisitions. Considering its solid financials and healthy growth prospects, I expect the uptrend in Waste Connections to continue.
Hydro One
Another defensive stock I am bullish on is Hydro One (TSX: H), a pure-play electricity transmission and distribution company with no material exposure to commodity price fluctuation. With 99% of its business rates regulated, its financials have been stable and predictable, irrespective of broader market conditions.
Moreover, Hydro One has planned to invest $11.8 billion from 2023 to 2027, expanding its rate base at a 6% CAGR (compound annual growth rate). Along with these expansions, favourable rate revisions and cost-cutting initiatives, such as outsourcing certain activities and adopting strategic sourcing, could boost its financials in the coming years. Amid these growth initiatives, the company’s management expects its EPS to grow by 5-7% annually. Moreover, the management is confident of raising its dividend at a 6% CAGR through 2027. Further, given its capital-intensive business, the company could benefit from interest rate cuts.
Bank of Nova Scotia
My final pick is Bank of Nova Scotia (TSX: BNS), which has witnessed healthy buying since August, with its stock price rising by 16.4%. The interest rate cuts by the Bank of Canada and healthy third-quarter performance have improved investors’ confidence, driving its stock price higher. The company continued to witness deposit growth and net interest margin expansion in Canada for the third consecutive quarter. Besides, its CET1 (common equity tier-one) capital ratio improved from 12.7% in the previous year to 13.3%.
BNS has also invested strategically in KeyCorp, which could increase its near-term profitability and expand its business in the United States. Moreover, the decline in interest rates could boost economic activities, thus driving credit demand. Considering all these factors, I expect BNS’s financials to improve in the coming quarters.
Also, BNS has been rewarding its shareholders by paying dividends since 1833. Over the last 10 years, the company has raised its dividends at a 5.75% CAGR and currently offers a forward dividend yield of 5.65%. Considering all these factors, I believe BNS would be an excellent addition to your portfolio.
