Donald Trump is once again in office and once again threatening Canada with tariffs.
In his first term, Donald Trump slapped steep tariffs on several Canadian export goods, most notably steel and aluminum. The tariffs were eventually walked back, but this time around, Trump is threatening far more aggressive tariff action. Pledging to slap a sweeping 25% tariff on all goods moving from Canada to the U.S., Trump is suggesting something unprecedented.
If history is any judge, the tariffs Trump has planned will be walked back as trade negotiations play out. Still, there could be a short-term impact on Canada’s economy and businesses. For this reason, if you’re going to be investing in Canadian equities, it pays to invest in ones that are relatively unaffected by Trump Tariffs. In this article, I will share three protected stocks for a Trump-proof portfolio.
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EQB
EQB Inc (TSX: EQB) is a small Canadian bank that is sometimes referred to as “Canada’s challenger bank.” It is known for its stable funding sources — mainly Guaranteed Investment Certificates (GICs) — and its low-cost business model.
EQB has been one of Canada’s fastest-growing banks over the last several years. In the trailing 12-month (TTM) period, it grew its revenue by 22.5%, which was far faster than any of the Big Six banks in the same period. The company’s earnings growth in the period wasn’t quite as good, at 5.75%. But this is a company with many years of rapid growth under its belt and a 23% annualized five-year dividend-growth rate. I can’t say for sure that EQB will be able to continue compounding at such a rate in the long term, but I can tell you that, as a 100% domestic company, it is immune to Trump tariffs.
First National
First National Financial (TSX: FN) is a Canadian non-bank lender with a 100% domestic focus. Like EQB, it has no branches, instead opting to issue mortgages through partner brokers. Unlike EQB, it finances its loans through bond issuance rather than term deposits. So, its funding tends to be long-term and not at risk of bank runs.
FN has not done as much growing as EQB has over the years. Its revenue and earnings have compounded at just low to mid-single-digit rates over the last five and 10-year periods. However, FN does have a high dividend yield: about 5.9%. Also, its dividend is paid monthly.
About a year ago, I tended to give FN pretty positive coverage here on Motley Fool. Toda,y I’m less enthusiastic about it: the Bank of Canada’s rate cuts mean it will make less money than it did a year ago. Still, it is one solidly Trump-proof Canadian stock that should do reasonably well in the long term.
Loblaw
Loblaw (TSX: L) is a Canadian grocery stock that is relatively immune from Trump tariffs. The company does not sell anything to U.S. customers at all, although it imports some branded food products from the United States. There are enough Canadian alternatives on the market for the company to be fine if retaliatory imports make U.S. food imports expensive. Loblaw stock is a little pricey for my tastes, but it’s definitely a relatively “safe” name for a trade war scenario.
