After a weak December, the Canadian equity markets have started this year positively, with the S&P/TSX Composite Index rising 3%. However, concerns over the impact of new policies adopted by the Donald Trump administration and sticky inflation persist. Given the uncertain outlook, I believe adding defensive stocks will help investors navigate this uncertainty. Against this backdrop, here are my three top picks.
Fortis
Fortis (TSX:FTS) is an excellent defensive bet in this volatile environment due to its regulated assets base and low-risk transmission and distribution business. It serves around 3.5 million customers across the United States, Canada, and the Caribbean, meeting their electric and natural gas needs. Supported by its rate base expansion and strong execution, the company’s financials have grown at a healthier rate, thus driving its stock price. Over the last 20 years, the utility company has delivered an average annual total shareholders return of 10.3% for the previous 20 years.
Moreover, Fortis continues to expand its asset base with an investment of $5.2 billion in 2024. Further, it has a robust project pipeline and plans to invest around $26 billion over the next five years, growing its rate base at an annualized rate of 6.5%. Besides, favourable customer rate revisions and improving operating efficiency could support its growth. Given its capital-intensive business, the company could also benefit from the Central Bank’s monetary easing initiatives.
Dollarama
Another defensive stock I am betting on is Dollarama (TSX:DOL), a discount retailer with an extensive presence nationwide. It has adopted a superior direct sourcing model, eliminating intermediatory expenses and boosting its bargaining power. Besides, its efficient logistics allow it to offer various consumer products at compelling prices, thus witnessing healthy same-store sales even during challenging environments. The company has a substantial presence across Canada, with around 85% of households having a Dollarama store within 10 kilometres.
Moreover, Dollarama has a solid expansion plan and expects to increase its store count from 1,601 to 2,200 by the end of fiscal 2034. Given its efficient capital model, quick sales ramp-up, and lower store network maintenance, these expansions could boost its top and bottom lines. Further, the company also owns a 60.1% stake in Dollarcity, which operates discount retail stores in Latin America. Meanwhile, Dollarama can raise its stake to 70% by exercising its option within 2027. Moreover, Dollarcity is also expanding its store network and expects to add 472 stores over the next six years. Considering its solid underlying business and healthy growth prospects, I believe Dollarama could outperform in the coming quarters.
Waste Connections
Given the nature of its business and consistent performance, I have chosen Waste Connections (TSX:WCN) as my final pick. The company operates in the United States and Canada, collecting, transferring, and disposing of non-hazardous solid wastes. It has been expanding its business through organic growth and acquisitions. With the company operating prominently in secondary and exclusive markets, it faces lesser competition and enjoys higher margins.
Meanwhile, Waste Connections continues with organic growth and strategic acquisitions to expand its business and boost its financials. Further, the company has also adopted innovative approaches toward employee engagement, leading to a decline in voluntary turnovers for eight consecutive quarters. Amid these initiatives, the company’s management expects its 2025 revenue to grow mid- to high single-digit, while its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) could grow in the high single-digit range.
The waste management company also enhances shareholders’ value through consistent dividend growth. Since 2010, it has raised its dividends at a 14% CAGR (Compound annual growth rate).
