Defensive companies provide essential products and services, resulting in steady demand regardless of broader market conditions. As a result, these companies tend to deliver stable financial performance and reliable returns. With this in mind, let’s examine Waste Connections (TSX:WCN) and Dollarama (TSX:DOL) to determine which of these two could be the better defensive investment.
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Waste Connections
Waste Connections is engaged in collecting, transferring, and disposing of non-hazardous solid waste. It operates in exclusive and secondary markets of the United States and Canada, thereby facing less competition and enjoying higher margins. The integrated solid waste management company has expanded its business through both organic growth and an aggressive acquisition strategy. Since 2020, the company has spent more than $6.5 billion to complete over 110 acquisitions. These growth initiatives have boosted its financials and stock price. It has delivered over 465% returns in the last 10 years, at an annualized rate of 18.9%. Amid these solid returns, the company currently trades at NTM (next-12-month) price-to-sales multiple and NTM price-to-earnings multiples at 4.9 and 34.8, respectively.
Moreover, WCN is constructing 12 renewable natural gas facilities, which could become operational next year. These facilities can together contribute $200 million to its EBITDA (earnings before interest, taxes, depreciation, and amortization) annually once they become operational. Further, the company’s management has adopted technological advancements, such as robotics and optical sorters, to improve its operating efficiency. Further, it has adopted AI (artificial intelligence) based e-learning modules and AI-driven, camera-based telematics in its fleet to improve employee safety. Along with these employee safety measures, its enhanced employee engagement has lowered voluntary turnover and open positions, thereby driving its operating margins.
WCN is also continuing with its acquisitions and has acquired several assets year to date that can contribute around $200 million to its topline annually. Given its solid financial position, healthy cash flows, and a robust acquisition pipeline, the company’s management expects to continue with its acquisitions, with the management expecting to witness outsized acquisition activities this year. Considering all these factors, I believe WCN’s growth prospects look healthy.
Dollarama
Dollarama is a Canadian discount retailer that operates 1,638 stores across Canada. Supported by its superior direct-sourcing model, buying capabilities, and efficient logistics, the company is able to deliver compelling value to its customers, thereby enjoying healthy same-store sales irrespective of the broader market conditions.
Further, the Montreal-based discount retailer has grown its store count from 652 in fiscal 2011 to 1,638 as of the end of fiscal 2026. These expansions, along with the healthy same-store sales, have driven its top line at an annualized rate of 11.4% since fiscal 2011. Meanwhile, its net income has grown at a 17.9% CAGR (compound annual growth rate), while its EBITDA margin has doubled to over 33%. These solid financial performances have driven its stock price higher, with the company delivering over 670% returns in the last 10 years at an annualized rate of 22.7%. Meanwhile, Dollarama currently trades at NTM price-to-sales and NTM price-to-earnings multiples of 7.7 and 41.2, respectively.
Moreover, Dollarama continues to grow its store network and expects its store count to reach 2,100 by the end of fiscal 2034. Given its cost-effective, growth-oriented business model, lean operations, and lower pay-back period, these expansions could support both its top and bottom lines. Additionally, the company recently entered the Australian retail market by acquiring The Reject Shop, which operates 390 discount stores across the country.
Further, Dollarama owns a 60.1% stake in Dollarcity, which operates 644 retail stores across Latin America. Meanwhile, Dollarcity is expanding its footprint and expects to reach a store count of 1,050 by the end of fiscal 2031. Further, Dollarama can increase its stake in Dollarcity to 70% by exercising its option by the end of fiscal 2027. Considering these growth initiatives, I expect the uptrend in Dollarama’s financials and stock price to continue.
Investors’ takeaway
Supported by their solid financials, both companies have rewarded their shareholders with healthy returns over the last 10 years. Meanwhile, I believe WCN would be a better defensive bet due to the essential nature of its business and relatively cheaper valuation.
