Global equity markets have become volatile over the last few days amid the escalating trade war. The S&P/TSX Composite Index has fallen over 11% from the previous week’s high. Amid growing volatility, investors should strengthen their portfolios through defensive stocks that are less prone to macroeconomic fluctuations. Against this backdrop, let’s look at my three top picks.
Waste Connections
Waste Connections (TSX:WCN) is an excellent defensive stock to have in your portfolio due to the essential nature of its business. It collects, transfers, and disposes of solid, non-hazardous waste primarily in secondary and exclusive markets across the United States and Canada. It has been growing its financials at an impressive rate for the last five years through organic growth and strategic acquisitions.
Since 2020, the waste management company has completed over 100 acquisitions, outlaying around $6.5 billion. Meanwhile, its top line has grown at an annualized rate of 10.4% during this period, while its adjusted net income has increased at 11.8% CAGR (compound annual growth rate). Amid these solid financials, the company has returned around 128% in the last five years at an annualized rate of 17.9%.
Moreover, given its solid organic growth prospects and acquisition pipeline, I expect the uptrend in WCN’s financials to continue. It is developing several renewable natural gas plants and resource recovery facilities, which could become operational next year. Amid these growth initiatives, the company’s management expects its top line to grow around 7% this year. Also, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin could expand by 80 basis points to 33.3%. Considering all these factors, I believe WCN would be an excellent buy.
Dollarama
Dollarama (TSX:DOL) is a discount retailer that operates 1,616 stores across Canada, with around 85% of Canadians having at least one store within a 10-kilometre radius. Its direct sourcing model and efficient logistics allow it to offer various consumer products at a compelling value, thus enjoying healthy same-store sales even during a challenging macro environment. Its increasing store count has boosted its financials, with its top line growing at an 11.4% CAGR since fiscal 2011. During the same period, its net income grew at a 17.9% CAGR, while its adjusted EBITDA margin expanded from 16.5% in fiscal year 2011 to 33.1% in fiscal year 2025.
Moreover, Dollarama hopes to add around 600 stores over the next nine years to grow its store count to 2,200 by the end of the fiscal year 2034. Considering its capital-efficient, growth-oriented business model, lean operation, quick sales ramp-up, and lower payback period, these expansion initiatives could drive its top and bottom lines. Further, the company’s subsidiary, Dollarcity, continues to expand its footprint in Latin America and hopes to add around 420 stores over the next six years. Also, Dollarama can increase its holding in Dollarcity from 60.1% to 70% by exercising its option by the end of 2027.
Moreover, the discount retailer is working on acquiring The Reject Shop, an Australian discount retailer that operates 390 stores and has generated $779 million in the last 12 months. Considering all these factors, I believe Dollarama would be an excellent buy.
Fortis
My final defensive pick is Fortis (TSX:FTS), which operates highly regulated utility businesses, meeting the electric and natural gas needs of 3.5 million customers. Its financials are less prone to economic cycles, thus generating stable and predictable cash flows. Supported by these healthy cash flows, the utility company has raised its dividends uninterruptedly for 51 years and currently offers a forward dividend yield of 3.88%. Also, the company has delivered an average total shareholder return of 10.3% for the last 20 years, outperforming the broader equity markets.
Moreover, Fortis is growing its rate base through its $26 billion capital investment plan. The company expects to make these investments from 2025 to 2029 and grow its rate base at an annualized rate of 6.5%. Along with the expanding rate base, the favourable rate revisions and solid operating performances could continue to drive its financials and stock price. Amid these growth prospects, the company’s management hopes to raise its dividends by 4-6% annually through 2029, thus making it an attractive buy.
