Canadian equity markets have started this year positively, with the S&P/TSX Composite Index rising 2.2%. However, concerns over the Donald Trump administration’s proposed tariffs on imports and sticky inflation could make equity markets volatile in the near term.
So, investors should be careful while buying through their TFSA (Tax-Free Savings Account). A decline in the stock value purchased through TFSA and subsequent selling would lead to capital erosion and a lower TFSA contribution limit. Against this backdrop, I believe the following three defensive Canadian stocks are ideal additions to your TFSA.
Waste Connections
One of the top defensive stocks you can have in your portfolio is Waste Connections (TSX:WCN), a waste management company that collects, transfers, and disposes of non-hazardous solid waste. With the company operating primarily in exclusive and secondary markets, it faces lesser competition and enjoys higher operating margins. The company continues to expand its footprint through strategic acquisitions. It has acquired 17 non-hazardous solid waste management businesses and four E&P (exploration and production) waste treatment and disposal businesses in the first nine months. These acquisitions have contributed US$366.7 million to its total revenue.
Meanwhile, the uptrend in its financials could continue due to its acquisitions, organic growth, and higher core prices. WCN’s management expects its 2025 revenue to grow in the mid- to high single digits. Also, the management projects its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to increase in the high single digits. So, its growth prospects look healthy. Also, the company has enhanced its shareholders’ returns by raising its dividends at an annualized growth rate of 14% since 2010. Considering all these factors, I believe WCN would be an excellent addition to your TFSA.
Dollarama
Dollarama (TSX:DOL) is another excellent defensive stock to have in your portfolio due to its healthy same-store sales, even during challenging market conditions. The company has adopted a superior direct sourcing model, enhancing its bargaining power while lowering intermediatory expenses. Also, its effective logistics allow the company to offer various consumer product offerings at attractive prices, boosting footfalls and sales.
Meanwhile, Dollarama has plans to expand its store network to 2,200 by the end of fiscal 2034, representing a net addition of 599 stores from its current levels. Also, it owns around 60.1% of Dollarcity, which operates discount stores in Latin America. Dollarama owns an option allowing it to increase its stake in Dollarcity by 9.89% by the end of 2027. Dollarcity has aggressive expansion plans and expects to add over 570 stores over the next six years. These growth initiatives could continue to support its financial growth in the coming years, thus driving its stock price higher.
Hydro One
My final pick is Hydro One (TSX:H), a pure-play electricity transmission and distribution company with no substantial exposure to commodity price fluctuations. It operates a highly regulated business, with 99% of cash flows generated from regulated assets. So, its financials are less prone to market volatility. Further, the electric utility company has expanded its rate base at an annualized rate of 5% since 2018, thus boosting its financials and stock price. Over the last five years, its stock price has increased by over 100% at an annualized rate of 14.9%.
Moreover, Hydro One is continuing with its $11.8 billion capital expenditure plan, which could grow its rate base at 6% CAGR (compound annual growth rate) through 2027. It has also taken several initiatives to cut expenses and improve operating efficiencies, thus driving its profitability. Amid these growth initiatives, the company’s management expects its EPS (earnings per share) to grow by 5-7% annually until 2027. The management also hopes to hike its dividends at a 6% CAGR, making it an excellent addition to your TFSA.
