The possibility of 25% tariffs on Canadian imports under a potential Trump presidency has many investors nervous — and understandably so. With Canada sending 77% of its exports (a whopping $548 billion worth) to the U.S. in 2023, the concern is real. But before you consider moving your investments into cash, let’s look at two TSX heavyweights that could weather the storm.
While energy stocks and auto parts manufacturers might face significant direct hits from tariffs, some sectors are better positioned to thrive. Here are two compelling and resilient stock investment options that could help protect your portfolio: Royal Bank of Canada (TSX:RY) and Restaurant Brands International (TSX:QSR) stock.
Resilient TSX stock: Royal Bank of Canada
Royal Bank of Canada, popularly known as RBC, isn’t just Canada’s largest bank — it’s a financial fortress with built-in tariff protection. Generally, financial services can be expectedly exempt from trade tariffs, and the chances that Donald Trump may impose barriers on services trade remain significantly low.
Even if tariffs were imposed on some banking products, the bank has strategically positioned itself in the U.S. market, making it its “second home.” RBC Capital Markets ranks as the ninth-largest U.S. investment bank, while Royal Bank’s wealth management arm stands as the sixth-largest public wealth advisor in America. A local presence in the U.S. market will make RY stock immune to any direct tariff threats on Canada.
Trump’s trade tariffs may shock the Canadian economy and weaken its currency. However, any potential weakening of the Canadian dollar due to tariffs could materially benefit RBC stock. With 26.2% of revenue and 17.7% of net income coming from U.S. operations in fiscal 2024, currency headwinds could turn into tailwinds for RBC’s profitable operations.
Whatever short-term economic shocks new trade restrictions may cause to Canada, Royal Bank stock has successfully weathered economic headwinds since its initial public offering (IPO) in 1918. It’s most likely resilient enough to shrug off the impact of Trump’s tariffs.
For income-focused investors, RBC’s 3.4% dividend yield looks particularly attractive. The bank has grown its dividend at an impressive 9% annual rate over the past three years, demonstrating its commitment to shareholder returns, an attribute that has remained present even in challenging times.
Restaurant Brands International
Think Tim Hortons, Burger King, and Popeyes. Restaurant Brands International’s $40 billion annual revenue franchise system operates in 120 countries, making it widely diversified. What’s particularly clever about the food industry franchisor’s setup is how it structured its supply chain. Most of Restaurant Brands’s U.S. operations source ingredients locally through American suppliers and cooperatives, effectively sidestepping potential tariff impacts.
While Tim Hortons (representing 49.3% of sales in the first three quarters of 2024) does have some Canadian manufacturing facilities, the company maintains strategic redundancy with facilities on both sides of the border. For instance, the business operates coffee roasting facilities in both Ontario and New York, ensuring supply chain flexibility.
Restaurant Brands International’s numbers tell a resilient and compelling growth story that was sustained through a high-inflation period post-pandemic: revenue is up 38.2% compared to three years ago, while net income has grown an impressive 44.8%. Trading at a forward price-to-earnings ratio of 17.9 (well below the industry average of 26), QSR stock remains reasonably valued and offers a generous 3.6% dividend yield. The dividend has been growing for nine consecutive years.
Investor takeaway
While tariffs would undoubtedly create challenges for the Canadian economy, both RBC stock and Restaurant Brands stock have built-in resilience through their U.S. presence, diversified operations, and strong market positions. Their healthy dividend yields can provide steady income while you wait out any market turbulence.
Remember, successful long-term investing often means thinking beyond the latest headlines. The two resilient TSX stocks have weathered economic storms before and have positioned themselves to potentially thrive even in challenging conditions. As always, consider diversifying your personal investments to build more capital resilience.
