Last week, the president of the United States, Donald Trump, announced a 90-day delay in imposing reciprocal tariffs except for on China. These announcements appear to have brought some relief, driving the equity markets higher. The S&P/TSX Composite Index rose 6.9% from last week’s lows. Despite the recent recovery, I expect the equity markets to remain volatile in the near term due to the uncertainty over the impact of the trade war on global economic growth.
Amid the uncertain outlook, investors should strengthen their portfolios with quality defensive stocks that are less prone to broader market conditions. Let’s look at my three top picks against this backdrop.
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Fortis
Fortis (TSX:FTS) operates 10 regulated utility assets across Canada, the United States, and the Caribbean, serving 3.5 million customers. Around 93% of its assets are engaged in low-risk transmission and distribution business, thus shielding its financials from economic cycles and delivering consistent returns. The electric and natural gas utility company has delivered an average total shareholder return of 10.3% for the last 20 years, comfortably beating the broader equity markets. It has also rewarded its shareholders by raising its dividends for the previous 51 consecutive years and currently offers a forward dividend yield of 3.7%.
Moreover, Fortis is progressing with its $26 billion capital investment plan, which would grow its regulated asset base at an annualized rate of 6.5% through 2029. Further, the revision in customer rates and improving operating performance could continue to support Fortis’s financial growth in the coming years. Amid these healthy growth prospects, the company’s management hopes to raise its dividends by 4–6% annually through 2029, making it an excellent buy.
Dollarama
Another Canadian stock that would be a worthwhile buy in this uncertain outlook is Dollarama (TSX:DOL), which operates 1,616 discount stores in Canada. Through its superior direct-sourcing mode and effective logistics, the discount retailer offers a broad range of consumer products at compelling prices, thus enjoying healthy footfalls even during challenging environments. Besides, the company’s expanding footprint through new store openings has boosted its financials and stock price. Over the last 10 years, the company has returned around 645% at an annualized rate of 22.2%.
Further, Dollarama continues to expand its footprint and hopes to raise its store count to 2,200 over the next nine years. Given its capital-efficient business model, lower maintenance capex requirements, and quick sales ramp-up, these store network expansions could boost its financials in the coming years. Moreover, Dollarama has a solid presence in Latin America through Dollarcity, which operates 632 stores. Dollarama can also increase its stake in Dollarcity from 60.1% to 70% by exercising its option by the end of 2027. Dollarcity plans to grow its store network to 1,050 by the end of fiscal 2031. Dollarama is also working on acquiring The Reject Shop, which operates 390 discount stores in Australia, for $233 million. Amid these growth initiatives and its consistent financials, I expect the uptrend in Dollarama’s stock price to continue.
Hydro One
Hydro One (TSX:H) would be my final pick. It transports and distributes electricity across Ontario, with 99% of its business fully rate-regulated and no material exposure to commodity price fluctuations. The Toronto-based utility company has grown its rate base at an annualized rate of 5.1% for the last six years. Along with these growth initiatives, its cost-cutting initiatives have delivered $1.8 billion in cost savings since 2016, boosting its financials and stock price. Amid its healthy financials, the company has raised its dividends at an annualized rate of 5.1% since 2017, with its forward dividend yield at 2.5%.
Moreover, the rising electricity demand amid the focus on decarbonization, growing electrification, and technological advancements could benefit Hydro One. Further, the company is expanding its asset base with its $11.8 billion capital investment plan, which could grow its rate base at a 6% CAGR (compound annual growth rate) through 2027. Amid these growth initiatives, Hydro One’s management expects its EPS (earnings per share) to grow 6–8% annually through 2027. Also, the management expects to increase its dividends at a 6% CAGR through 2027, making it an enticing buy.
