With the easing of Middle East tensions, the Canadian equity markets are on an upward momentum, hitting a new high on Friday. However, the announcement by Donald Trump, the United States President, on Friday that he is terminating all trade discussions with Canada led to a pullback, with the S&P/TSX Composite Index closing the day 0.22% lower. Given the uncertainty surrounding trade policies and their impact on global growth, investors should consider strengthening their portfolios with quality defensive stocks that offer stability. Here are my two top picks.
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Fortis
Fortis (TSX: FTS) operates 10 regulated utility assets, serving 3.5 million customers and meeting their electric and natural gas needs. With 99% of its assets regulated and 93% involved in low-risk transmission and distribution businesses, its financials are less prone to economic cycles and commodity price fluctuations. The expanding rate base and favourable customer price revisions have supported its financial growth, driving its stock price upward. Over the last 20 years, the company has returned above 580% at an average total shareholder return of 10.1%. Notably, it has also rewarded its shareholders by increasing its dividends for 51 years and currently offers a dividend yield of 3.8%.
Meanwhile, Fortis’s $26 billion capital investment over the next five years would grow its rate base at an annualized rate of 6.5% to $53 billion by the end of 2029. The company’s management aims to cover approximately 70% of these investments through cash generated from its operations and dividend reinvestment plans. Therefore, these investments won’t substantially raise the company’s leverage and interest expenses. Moreover, amid these growth initiatives, management anticipates increasing dividends at a 4–6% CAGR (compound annual growth rate) through 2029. Along with these growth initiatives, falling interest rates could benefit capital-intensive utility companies, including Fortis, thereby making it an excellent buy in this uncertain outlook.
Dollarama
My second pick is Dollarama (TSX: DOL), which operates 1,638 discount retail stores across Canada. Supported by its value offerings, nationwide presence (with 85% of Canadians having at least one store within a 10-kilometre radius), and a wide range of consumer products, the company has enjoyed healthy same-store sales even during challenging times. Its superior direct-sourcing model and effective logistics have reduced its expenses, thereby offering a range of products at attractive prices.
Additionally, the Montreal-based retailer has expanded its footprint by opening an average of 66 new stores per year over the last 10 years. These expansions have boosted its top and bottom lines, thereby driving its stock price higher. The company has returned 697% over the past 10 years, at an annualized rate of 23.1%.
Additionally, Dollarama continues to open new stores, with management targeting an increase in its store count to 2,000 by the end of fiscal 2034. Furthermore, it owns a 60.1% stake in Dollarcity, which operates 644 stores in Latin America. Dollarcity is also expanding its store count and hopes to increase it to 1,050 by the end of fiscal 2031. Therefore, we can expect Dollarcity’s contribution to Dollarama’s net income to rise in the coming years. Additionally, Dollarama is in the process of acquiring The Reject Shop, which operates 390 stores in Australia, for $233 million. Given the customary closing conditions, Dollarama’s management anticipates closing the deal in the second half of this year. Considering all these factors, I believe Dollarama would be an ideal buy in this challenging environment.
