The Canadian equity markets have witnessed solid buying over the last few weeks, with the S&P/TSX Composite Index rising 12.4% from last month’s lows. Easing trade tensions has improved investors’ sentiments, supporting stock price growth. However, the uncertainty surrounding the United States’s trade policy and its impact on global growth could lead to a volatile equity market in the coming months. Given the uncertain outlook, I would like to add quality stocks with solid underlying business and healthy cash flows to my portfolio. Meanwhile, here are my two top picks.
Dollarama
Dollarama (TSX:DOL) owns and operates 1,616 discount retail stores across Canada, with 85% of Canadians having at least one store within 10 kilometres of their surrounding area. Its superior direct-sourcing model and effective logistics allow the company to offer various consumer products at attractive prices, thus enjoying healthy same-store sales even during challenging environments. Supported by its healthy same-store sales and expansion of its store count from 652 to 1,616, the company has grown its revenue and net income at an annualized rate of 11.4% and 17.9% since fiscal 2011, respectively. Amid these solid performances, the company has returned 660% over the last 10 years at an annualized rate of 22.5%.
Meanwhile, Dollarama continues to expand its store network and expects to raise its store count to 2,200 by the end of fiscal 2034. The retailer also owns a 60.1% stake in Dollarcity, which operates 632 discount retail stores in Latin America. It can increase its stake to 70% by exercising its option within 2027. Moreover, Dollarcity plans to add around 420 stores over six years. Dollarama is also working on acquiring The Reject Shop, the largest discount retailer in Australia, for $233 million. The company’s management expects to close the transaction in the second half of this year. Considering its growth initiatives, I believe the uptrend in Dollarama’s financial performance will continue, supporting its stock price.
Enbridge
Enbridge (TSX:ENB) operates a regulated midstream energy business underpinned by a tolling framework and long-term take-or-pay agreements. Further, it also operates low-risk natural gas utility assets and renewable energy facilities backed by power-purchase agreements. Therefore, its financials are less prone to commodity price fluctuations and economic cycles, generating reliable cash flows. Amid these stable cash flows, the company has paid dividends for 70 years. It has also raised its dividends at an annualized rate of 9% since 1995 and currently offers an attractive forward dividend yield of 5.93%.
Moreover, Enbridge has further strengthened its cash flows by acquiring three natural gas utility assets in the United States for $19 billion. It is also expanding its midstream, utility, and renewable assets through its $26 billion secured growth program. Amid these investments, it expects to put $23 billion of assets into service over the next three years, supporting its financial growth. The company’s management expects its adjusted earnings before interest, tax, depreciation, and amortization to grow 7-9% annually over the next two years and 5% thereafter. So, the management expects to raise its dividends by 3% annually through 2026 and 5% after that. Considering its solid underlying business, healthy growth prospects, and high dividend yield, I am bullish on Enbridge.
