On Wednesday, the United States Federal Reserve lowered its benchmark interest rates by 25 basis points to 4.25–4.5%. However, the agency indicated just two rate cuts next year, lower than the four rate cuts it had predicted in September. The slowdown in monetary easing initiatives appears to have led to a pullback in the Canadian equity markets, with the S&P/TSX Composite Index falling 2.8% in the last two trading days. Further, the index has declined by 4.8% since the beginning of this month.
Amid the rising volatility, investors can buy the following three safe stocks to strengthen their portfolios.
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Hydro One
Hydro One (TSX:H) transmits and distributes electricity, serving 1.5 million customers in Ontario. With 99% rate-regulated assets and a low-risk business, the company’s financials are less vulnerable to market volatility. Besides, the hydro producer has grown its rate base at an annualized rate of over 5% since 2018, thus driving its financials. Supported by these solid financials, H stock has delivered around 103% returns in the last five years at an annualized rate of 15.2%.
Moreover, the electricity demand is rising amid favourable government policy changes, decarbonization initiatives, and technological advancements, thus expanding the demand for Hydro One’s services. Meanwhile, the company has planned to invest around $11.8 billion through 2028, expanding its rate base at an annualized rate of 6%. Along with these growth initiatives, its effort to improve operating efficiency and reduce costs could improve its profitability in the coming quarters. The company also recently raised around $750 million through medium-term notes, improving its financial position. Considering all these factors, I am bullish on Hydro One despite the uncertain market outlook.
Waste Connections
Waste Connections (TSX:WCN) is another safe stock to add to your portfolio, given the essential nature of its business. The waste management company has expanded its footprint through organic growth and strategic acquisitions across the United States and Canada. Besides, it operates primarily in the secondary and exclusive markets, thus facing lesser competition and enjoying higher margins. Supported by solid financials, the company has returned around 475% in the last 10 years at an annualized rate of 19.2%.
Meanwhile, WCN is building several renewable natural gas (RNG) and resource recovery facilities, which will become operational in the coming years. The waste solutions firm has also adopted technological advancements, which could improve its operational efficiency and employee safety. Besides, it continues to make strategic acquisitions, with the management projecting these acquisitions to contribute $700 million this year. Management also expects the rollover from these acquisitions to contribute around 2% to its 2025 revenue. WCN stock has also increased its dividends at a 14% CAGR (compound annual growth rate) since 2010, making it an excellent buy.
Enbridge
Enbridge (TSX:ENB) is my final pick. The diversified energy company earns around 98% of its cash flows from long-term contracts. So, its financials are less susceptible to the macro environment, thus generating stable and predictable cash flows. Supported by these healthy cash flows, the company has rewarded its shareholders by paying dividends for 69 years. It has also raised its dividends for 30 previous years. With a quarterly dividend of $0.9425/share, ENB stock currently offers a juicy forward yield of 6.4%.
Further, the company continues to expand its midstream, utility, and renewable assets through its $27 billion secured capital program. Also, the recent acquisition of three natural gas utility assets in the United States has further strengthened its cash flows and lowered business risks. Meanwhile, the company expects its DCF (discounted cash flows)/share to grow at an annualized rate of 3% until 2025 and 5% after that. Given its liquidity of $17.1 billion, the company is well-positioned to fund its growth initiatives. Considering all these factors, I believe Enbridge could continue its dividend growth, thus making it an attractive buy.
