The Canadian equity markets are upbeat this year, with the S&P/TSX Composite Index rising by 21.2%. Easing inflation, interest rate cuts, and optimism over Donald Trump’s victory have improved investors’ optimism, driving equity markets higher. Despite the upbeat markets, a projected global economic slowdown, ongoing geopolitical tensions, and uncertainty over the impact of the proposed 25% tariff on Canadian goods by the United States are causes of concern. Given the uncertain outlook, I would like to balance my portfolio by adding a growth, a defensive, and a dividend stock. Here are my three top picks.
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Savaria
Savaria (TSX:SIS) is an impressive growth stock to have in your portfolio, given its solid financials and healthy growth prospects. The company’s topline has grown 3.9% in the first nine months amid organic growth and favourable currency translation. However, the divestment of its vehicle operations in Norway offset some of the growth. Amid topline growth and expansion of its operating margin, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew by 24.6%. Also, its adjusted EBITDA margin expanded from 15.3% to 18.4%.
The company generated $85.9 million of cash during the period, which it utilized to make capital investments and acquisitions and pay interest and dividends. The global leader in mobility and accessibility solutions has also strengthened its financial position by lowering its net debt-to-adjusted EBITDA multiple to 1.7 from 2.1 at the beginning of this year.
Meanwhile, the demand for Savaria’s solutions is rising amid an aging population and growing income levels. Given its comprehensive product line, widespread manufacturing facilities, and solid dealer network, the company is well-positioned to benefit from the expanding addressable market. Besides, its “Savaria One” initiative focuses on improving its market share, operational and productional throughput, procurement, and supply chain efficiencies. Also, the company offers monthly dividends, with its forward yield at 2.5%. Considering all these factors, I believe Savaria would be an excellent buy right now.
Hydro One
I have chosen Hydro One (TSX:H), a pure-play electricity transmission and distribution company, as my second pick. With 99% of its business rate-regulated and zero exposure to commodity price fluctuations, its financials are less susceptible to market volatility, thus making it an excellent defensive stock to have in your portfolio. The company has been growing its rate base at an annualized rate of 5% for the last six years, driving its financials and raising its dividends at an annualized rate of 5%.
Meanwhile, electricity demand is rising amid consumer choice, government policies towards electrification, technological advancements, and decarbonization initiatives. Hydro One is continuing with an $11.8 billion capital expenditure plan amid growing demand, which could increase its rate base at a 6% CAGR (compound annual growth rate) to $31.8 billion by 2027. Amid these growth initiatives, the company’s management expects its adjusted EPS to grow at an annualized rate of 5–7% through 2027. Also, management expects to maintain its dividend growth.
Enbridge
Enbridge (TSX:ENB), which has been raising its dividends for 29 years at an annualized rate of 10%, would be my final pick. The diversified energy company earns around 98% of its cash flows from long-term cost-of-service or take-or-pay contracts. So, its financials are less susceptible to market volatility, thus generating stable and predictable cash flows and allowing it to raise its dividends consistently. It currently pays a quarterly dividend of $0.915/share, translating into a forward dividend yield of 6.1%.
Meanwhile, Enbridge continues expanding its asset base with a $27 billion secured capital program. It has already spent $5 billion in the first three quarters. Also, the acquisition of three natural gas utility assets in the United States could boost its financials. Amid these growth initiatives, the management projects its adjusted EBITDA to grow at an annualized rate of 7–9% through 2026, while its discounted cash flows/share could grow at 3%. Given its stable cash flows from low-risk and contracted assets and continued investments, I expect Enbridge to continue raising its dividends, thus making it an excellent buy now.
