Investing in quality recession-resistant stocks is a proven strategy for building long-term wealth. However, it’s essential to identify a portfolio of companies that generate cash flows across market cycles to benefit from inflation-beating returns over time. In this article, I have shortlisted two such TSX stocks that could help you deliver inflation-beating returns over the next decade.
GFL Environmental stock
GFL Environmental (TSX:GFL), valued at a market cap of $26 billion, is a diversified environmental services company in Canada and the U.S. It offers non-hazardous solid waste management, infrastructure and soil remediation, and liquid waste management services.
Over the last 17 years, the company has grown from a single transfer station to a major industry player, with annual sales approaching the $8 billion milestone.
In Q3 2024, GFL grew its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) by 20% year over year, reporting a record margin of 31.1%, up from 28.1% in the year-ago period.
A widening profit margin enabled GFL to lower balance sheet debt as it ended Q3 with a net leverage ratio of 4.1 times, the lowest in company history.
GFL disclosed plans to sell its Environmental Services business for $6 billion in total after-tax proceeds, most of which will be used to lower long-term debt. Over the years, GFL has focused on offloading non-core services and low-quality revenue businesses.
Moreover, it remains on track to deploy $900 million towards mergers and acquisitions and organic growth. It has already commissioned two new materials recovery facilities in 2024, with two more planned for early 2025. GFL is on track to commission three renewable natural gas plants this year, diversifying its revenue base.
GFL is the fourth largest diversified environmental services company in North America, with operations across 10 Canadian provinces and 25 states in the U.S. Over the years, it has completed more than 250 acquisitions, resulting in strong earnings and revenue growth.
GFL’s stable cash flow generation allows it to pay shareholders an annual dividend of $0.06 per share, which translates to a yield of just 0.1%. However, these payouts have risen by 50% over the last four years.
Waste Connections stock
Valued at a market cap of $49 billion, Waste Connections (TSX:WCN) provides non-hazardous waste collection, transfer, disposal, and resource recovery services in North America. Since its initial public offering in June 2009, the TSX stock has returned close to 1,700% to shareholders in dividend-adjusted gains, comfortably beating the broader market return.
Waste Connections continues to expand steadily, as its core pricing rose by 6.8% year over year in Q3. Its adjusted EBITDA margin widened to 33.7% in Q3 from 32.5% in the year-ago period.
Similar to GFL, Waste Connections has banked on accretive acquisitions for growth. It is on track to end 2024 with a record number of private company acquisitions. In the first 10 months of 2024, it has signed or closed $700 million in annualized private company sales, which includes solid waste franchises, new competitive markets, and waste facilities.
Waste Connections pays shareholders an annual dividend of $1.76 per share, indicating a yield of 0.66%. These payouts have more than tripled over the past decade, significantly enhancing the yield-at-cost.
