Today, the Bureau of Labor Statistics announced that the January Consumer Price Index in the United States rose 3.3% compared to the previous year’s month. It was higher than economists’ expectations of 3.2%. Meanwhile, the Consumer Price Index rose 0.4% compared to the last month, which was also higher than economists’ projection of 0.3%. Higher-than-expected inflation could prompt the Federal Reserve to delay its rate cuts, thus making investors nervous. So, the equity markets have turned volatile today, with the S&P/TSX Composite Index trading in the red in the early hours of trading.
Moreover, I expect the equity markets to remain volatile in the coming months amid uncertainty over the impact of Donald Trump’s tariffs on global growth. In this volatile environment, I expect the following two defensive stocks to outperform due to the essential nature of their businesses and healthy cash flows.
Waste Connections
Waste Connections (TSX:WCN) collects and disposes of non-hazardous solid waste in the United States and Canada. It has expanded its footprint across both countries through organic and inorganic growth, driving its financials. The company operates in secondary and exclusive markets, which means it faces lesser competition and enjoys higher margins. Supported by solid financials, the company has returned around 490% in the last 10 years at an annualized rate of 19.4%.
Moreover, WCN completed record acquisitions last year, which could also support its 2025 revenue growth. Also, the company is developing several renewable energy and resource recovery facilities that could become operational in the coming years. Also, the company is adopting technological advancements, which could improve employee safety and operating efficiency. Its innovative approach to employee engagement has led to lower voluntary turnovers. So, its growth prospects look healthy. Further, the company has also enhanced its shareholders’s returns by raising its dividends at an annualized rate of 14% since 2010. Considering all these factors, I believe WCN would be an excellent buy to sail through this volatile environment.
Fortis
My second pick is Fortis (TSX:FTS), which meets the electric and natural gas needs of 3.5 million customers across the United States, Canada, and the Caribbean. Given its regulated asset base and low-risk transmission and distribution business, the utility company’s financials are less prone to market volatility, thus creating a stable base for recurring cash flows. Supported by these solid cash flows, Fortis has raised its dividends for 51 years, while its forward yield stands at 3.92%. Moreover, it has also delivered an impressive average annual total shareholders’ return of 10.3% for the last 20 years, outperforming the broader equity markets.
Further, the company has a solid expansion plan and expects to invest $26 billion through 2029. These investments could grow its rate base at an annualized rate of 6.5% to $53 billion by the end of 2029. Also, the company’s solid operating performance and favourable rate revisions could support its financial growth in the coming years. Amid these healthy growth prospects, the company’s management expects to raise its dividends at 4-6% annually through 2029.
Meanwhile, the Bank of Canada has slashed its benchmark interest rates four times since June last year and could continue with its monetary easing initiatives. Falling interest rates could benefit capital-intensive utility companies, such as Fortis. Considering all these factors, I believe Fortis would be an excellent defensive bet in this uncertain outlook.
