The Canadian equity markets remain volatile amid sticky inflation and uncertainty over the impact of Donald Trump’s protectionist policies. So, investors should be careful while adding stocks to their TFSA (Tax-Free Savings Account). A decline in the stock price invested through TFSA and subsequent selling could lead to capital erosion and a decline in cumulative contribution room. Against this backdrop, let’s look at three top defensive stocks you can add to your TFSA in this uncertain environment.
Fortis
Fortis (TSX:FTS) operates 10 regulated utility assets, meeting the electric and natural gas needs of 3.5 million customers. Its regulated asset base and low-risk utility businesses stabilize its financials. Also, its expanding rate base, improving operating efficiency, and favourable rate revisions have boosted its financials, thus driving its stock price higher. The utility company has delivered an average total shareholders return of 10.3% for the last 20 years, outperforming the S&P/TSX Composite Index. Also, the company has raised its dividend uninterruptedly for 51 years, with its forward dividend yield at 3.94%.
Moreover, Fortis is well-positioned to drive its risk-free earnings by expanding its rate base. It has planned to invest $26 billion over the next five years, growing its low-risk rate base at a 6.5% CAGR (compound annual growth rate) to $53 billion by 2029. Amid these growth initiatives, the company’s management hopes to raise its dividends at an annualized rate of 4-6% through 2029. Moreover, given its capital-intensive business, the company could also benefit from falling interest rates. Also, its valuation looks reasonable, with its NTM (next-12-month) price-to-earnings multiple at 18.3.
Waste Connections
As my second pick, I have chosen Waste Connections (TSX:WCN), which offers essential solid waste management services in the United States and Canada. It has been expanding its footprint through organic growth and strategic acquisitions, thus driving its financials and stock price. Over the last 10 years, the Toronto-based company has returned around 500% at a 19.6% CAGR (compound annual growth rate).
Moreover, WCN completed record acquisitions last year, which can contribute $750 million to its annualized revenue. These acquisitions could also contribute to its 2025 revenue growth. Its ongoing acquisitions and price-lead organic growth could also support its revenue growth. The company is also adopting technological advancements to improve employees’ safety and operating efficiency. It has also enhanced employee engagement, leading to a consistent decline in employee turnovers. All these factors could contribute to expanding its operating margins. Considering all these factors, I expect WCN to outperform, thus making it an excellent addition to your TFSA in this uncertain outlook.
Dollarama
I have chosen a discount retailer, Dollarama (TSX:DOL), as my final pick. Through its superior direct sourcing and efficient logistics, the company can offer various customer products at attractive prices, thus enjoying healthy same-store sales even during a challenging macro environment. The company has expanded its footprint to 1,601 stores, with 85% of Canadian households having at least one store within 10 kilometres.
Moreover, Dollarama is expanding its store network and expects to add around 600 stores over the next nine years to 2,200 stores by the end of fiscal 2034. Given its capital-efficient business model, quick sales ramp-up, and lower maintenance capital expenditure requirements, these expansions could boost its top and bottom lines. Further, its subsidiary, Dollarcity, has planned to expand its store count from 588 at the end of the third quarter of fiscal 2025 (October 27) to 1,050 by the end of fiscal 2031. Also, Dollarama can raise its stake in Dollarcity from 60.1% to 70% by exercising its option within 2027. Considering its healthy growth prospects, I expect Dollarama to continue its financial growth in the coming years, thus supporting its stock price growth.
