The Canadian equity markets are upbeat this year, with the S&P/TSX Composite Index trading 21.2% higher. The optimism surrounding Donald Trump’s victory, interest rate cuts, and easing inflation have driven the equity markets higher. However, concerns over a global economic slowdown, rising geopolitical tensions, and uncertainty over the impact of Trump’s universal tariffs persist. So, investors should be careful while buying through TFSA (Tax-Free Savings Account). A decline in the stock price purchased through TFSA and subsequent selling could lead to capital erosion and lower investors’ cumulative contribution limit. Against this backdrop, I believe the following two defensive stocks are ideal for your TFSA.
Dollarama
Dollarama (TSX:DOL) is a discount retailer that enjoys healthy same-store sales due to its compelling offerings. The company has adopted a superior direct-sourcing model, eliminating intermediatory expenses and boosting its bargaining power. So, the company is able to offer a wide range of products at attractive prices. It has expanded its store count from 652 in fiscal 2011 to 1,583 by the end of the second quarter of fiscal 2025.
Supported by healthy same-store sales and store expansions, Dollarama’s top and bottom lines have grown at an annualized rate of 11.5% and 18% during the period, respectively. Its EBITDA (earnings before interest, tax, depreciation, and amortization) margin has expanded from 16.5% to 32.5%. Moreover, the company plans to raise its store count to 2,000 by the end of fiscal 2031. Given its capital-efficient business model and quick sales ramp-up, these expansions could boost its financials.
Dollarama also owns a 60.1% stake in Dollarcity, which operates 580 retail stores in Latin America. Dollarama has the option to increase its stake in Dollarcity by 9.89% by the end of 2027. Dollarcity has been expanding its store count and hopes to increase it to 1,050 by the end of fiscal 2031. Considering its solid underlying business and healthy growth prospects, I believe Dollarama would be an excellent addition to your TFSA.
Fortis
Second on my list is Fortis (TSX:FTS), which operates 10 regulated utility assets across the United States, Canada, and the Caribbean. With 93% of its assets involved in low-risk transmission and distribution business, the company’s financials are less susceptible to market volatility. The company has been expanding its rate base at an annualized rate of 6.5% for the last four years, which has led to an expansion in its adjusted EPS (earnings per share) at a 6% CAGR (compound annual growth rate).
Supported by its stable financials and healthy cash flows from regulated utility assets, the company has returned an average total shareholder returns of 10.4% for the last 20 years, outperforming the broader equity markets. It has also raised its dividend for 51 years, with its forward yield currently at 3.91%.
Moreover, Fortis has planned to invest $26 billion from 2025 to 2029, expanding its rate base at an annualized rate of 6.5% to $53 billion by 2029. The expanding rate base, favourable rate revisions, and improving operational efficiencies could boost its financials in the coming quarters. Given its capital-intensive business model, the company could benefit from falling interest rates. Considering its stable cash flows from regulated businesses and healthy growth prospects, Fortis could continue its dividend growth, thus making it an excellent buy.
