The Canadian government introduced the TFSA (Tax-Free Savings Account) in 2009, allowing investors to reap tax-free returns on a defined amount called the contribution limit. Meanwhile, the decline in the value of stock prices bought through TFSA and subsequent selling would lead to capital losses and lower investors’ contribution room. So, investors should be careful when investing through their TFSA and choose stocks with solid underlying businesses and healthy cash flows. Against this backdrop, let’s look at my three top picks that are less prone to market volatility.
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Fortis
Fortis (TSX:FTS) is an excellent all-weather stock to have in your portfolio due to its regulated, low-risk utility assets. The company serves 3.5 million customers, meeting their electric and natural gas needs. Its low-risk transmission and distribution business makes its financials less prone to commodity price fluctuations and economic cycles. Supported by its stable financials, the utility company has delivered an average total shareholder return of 10.46% in the previous 20 years. Also, it has increased its dividends unceasingly for 51 years and currently offers a safe dividend yield of 3.76%.
Moreover, Fortis continues to expand its low-risk transmission and distribution assets through its $26 billion capital investment plan. These investments could grow the company’s rate base at an annualized rate of 6.5% through 2029 to $53 billion. Meanwhile, the company’s management hopes to generate 70% of these fundings through the capital generated from its operations and dividend reinvestment plan. So, these investments won’t substantially raise the company’s debt levels. Further, customer rate revisions and improving operating efficiency could also support Fortis’s financial growth in the coming years. Amid these growth initiatives, the company’s management expects to raise its dividend by 4-6% annually through 2029. Considering all these factors, I am bullish on Fortis.
Waste Connections
Second on my list is Waste Connections (TSX:WCN), which collects, transports, and disposes of solid, non-hazardous waste. It operates in secondary and exclusive markets in the United States and Canada, thus facing less competition and enjoying higher margins. Also, it has expanded its footprint through organic growth and strategic acquisitions, boosting its financials. Since 2020, the Toronto-based company has acquired 110 assets with an outlay of US$6.5 billion. Amid its solid financials and continued expansion, the company has delivered above 510% in the last 10 years at an annualized rate of 19.84%.
Moreover, Waste Connections continues to expand its asset base and has made several acquisitions this year, which can contribute US$125 million to its annualized revenue as of April 23. Given its solid financial position and free cash flow generation, the company expects an above-average acquisition activity this year. Also, the company is building 12 renewable natural gas facilities, which could contribute US$200 million to its annualized EBITDA (earnings before interest, tax, depreciation, and amortization) from 2026.
Further, the company’s improving safety standards, enhancing employee engagement, and use of technological advancements could continue to drive margin expansions. Considering all these factors, I believe Waste Connections would be an excellent buy.
Dollarama
Dollarama (TSX:WCN) is a discount retailer that operates 1,616 stores across Canada. Its superior direct-sourcing capabilities and efficient logistics allow it to offer various consumer products at attractive prices, thus delivering healthy same-store sales irrespective of the broader market conditions. These solid same-store sales and expanding store network have consistently driven its financials, providing solid returns. Over the last 10 years, Dollarama has returned 630% at an annualized rate of 22%.
Meanwhile, Dollarama continues to expand its store network and hopes to raise its store count to 2,200 by the end of fiscal 2034. It has a solid exposure to the Latin American market through its 60.1% stake in Dollarcity, which operates 632 discount stores. Dollarcity has plans to raise its store count to 1,050 over the next six years. Moreover, Dollarama can increase its stake to 70% by exercising its option by the end of fiscal 2031. Also, the company is venturing into the Australian retail market by acquiring The Reject Shop, which operates 390 discount stores. Considering its solid underlying business and healthy growth prospects, I expect the uptrend in Dollarama’s financials to continue, making it an excellent buy.
