The Canadian equity markets have been upbeat over the last few weeks, with the S&P/TSX Composite Index rising 18.2% from its previous month’s lows. The easing of trade tensions and favourable commentary by the Organisation for Economic Co-operation and Development on the Canadian economy have raised investors’ confidence, supporting the growth of the equity markets.
However, if you are worried the rally is overdone, or the protectionist policies would hurt the global economy, you can strengthen your portfolio with the following three quality defensive stocks.
Dollarama
Dollarama (TSX:DOL) is one of the excellent defensive stocks to have in your portfolio. The company’s superior direct sourcing model has enhanced its bargaining power and eliminated intermediatory expenses. Additionally, its effective logistics help reduce costs and enable the retailer to offer its products at attractive prices. Therefore, the company experiences healthy foot traffic even during a challenging macroeconomic environment. Also, the company has expanded its store network from 652 in fiscal 2011 to 1,616 by the end of fiscal 2025.
These store network expansions and healthy same-store sales have boosted Dollarama’s top and bottom lines. Over the last 14 years, the company has grown its revenue and net income at an annualized rate of 11.4% and 17.9%, respectively. Amid these solid financial performances, the company has returned 3,400% over the last 14 years at an impressive annualized rate of 28.9%.
Moreover, Dollarama continues to expand its store network, aiming to increase its store count to 2,200 by the end of fiscal 2034. Further, the company has a healthy exposure to the Latin American retail market through a 60.1% stake in Dollarcity. Dollarcity also plans to add 418 stores over the next six years to increase its store count from 632 to 1,050 by the end of fiscal 2031. Dollarama can also raise its stake in Dollarcity to 70% by exercising its option. Furthermore, Dollarama is in the process of acquiring the Reject Shop, which operates 390 discount retail stores in Australia, for $233 million and anticipates closing the deal in the second half of this year. Considering its solid underlying business and healthy growth prospects, I am bullish on Dollarama.
Waste Connections
Waste Connections (TSX:WCN) is another defensive stock you should consider buying to strengthen your portfolio. The solid waste management company has expanded its business through organic growth and strategic acquisitions, driving its financials. Amid these solid financials, the company has returned over 520% in the last 10 years at an annualized rate of 20%.
Moreover, WCN is developing 12 renewable natural gas plants, which the management expects to become operational next year. These projects could contribute $200 million to the company’s annualized EBITDA (earnings before interest, tax, depreciation, and amortization). Further, given its solid financial position and free cash flows, the company projects above-average acquisition activities this year. Additionally, the adoption of technological advancements and improvements in employee retention could support its margin expansion. Considering these growth initiatives, I expect the uptrend in WCN’s financials to continue, driving its stock price.
Fortis
Fortis (TSX:FTS) operates 10 regulated electric and natural gas utility assets across Canada, the United States, and the Caribbean, serving 3.5 million customers. The company’s highly regulated and low-risk utility assets shield its financials from market volatility, delivering reliable and predictable cash flows. Supported by these solid financials, the company has delivered 640% over the last 20 years at an annualized rate of 10.5%. It has also raised its dividend for 51 consecutive years and currently offers a healthy yield of 3.67%.
Moreover, Fortis is expanding its asset base through its $26 billion capital investment plan, which will increase its rate base at an annualized rate of 6.5% through 2029 to $53 billion. The company also expects to fund 70% of these investments through the cash generated from its operations and dividend reinvestment plans. So, these investments won’t substantially raise the company’s debt levels. Additionally, increased customer rates, improved operating efficiency, and falling interest rates could support margin expansion and boost cash flows, thereby supporting its future dividend payouts. Amid these healthy growth prospects, the company’s management anticipates increasing its dividend by 4-6% annually through 2029.
