The Canadian equity markets have been upbeat this year amid healthy quarterly performances, falling interest rates, and easing inflation. The S&P/TSX Composite Index rose 20.6%. However, uncertainty surrounding the trade war’s impact on the Canadian economy, coupled with the sharp rise in equity markets in recent months, remains a concern. If you are also worried about the uncertain outlook, here are three TSX stocks that are less prone to economic cycles and market volatility, thereby strengthening your portfolio.
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Waste Connections
Waste Connections (TSX: WCN) is an integrated waste management company that handles the collection, transfer, and disposal of non-hazardous solid waste, while also engaging in resource recovery through recycling and the generation of renewable fuels. It primarily operates in secondary and exclusive markets across the United States and Canada. Therefore, it faces less competition and enjoys healthier margins. It has expanded its operations through both organic growth and strategic acquisitions.
Over the past five years, the company has acquired more than 100 assets, generating approximately $2.2 billion in annual revenue. Supported by these solid financials, the company has delivered impressive average total shareholders’ revenue of 18.2% over the last 10 years. Meanwhile, I expect the uptrend in its financials to continue due to the essential nature of its business and continued acquisitions. The company has acquired several assets year-to-date that can contribute around $200 million to its annualized revenue. Given its solid financial position and healthy cash flows, the management anticipates an exceptional year of acquisition activity.
Additionally, WCN has raised its dividend consistently in double digits for the last 14 years and currently offers a dividend yield of 0.72%. Considering all these factors, I believe WCN would be an ideal buy for risk-averse investors.
Hydro One
Hydro One (TSX: H) focuses on electricity transmission and distribution, with minimal exposure to fluctuations in commodity prices. Additionally, 99% of its assets are underpinned by rate-regulated assets, thereby shielding its financials from market fluctuations. The company has grown its rate base at an annualized rate of 5.1% over the last six years, supporting its financial growth. Amid these expansions, the company has returned 107% in the previous five years at an annualized rate of 15.7%. It has also increased its dividend at a 5.5% CAGR (compound annual growth rate) since 2017 and currently offers a forward dividend yield of 2.7%.
Moreover, electricity demand is rising driven by economic growth, the electrification of the transport sector, and the expansion of power-intensive data centres to support the increased adoption of artificial intelligence. Meanwhile, Hydro One is continuing with its $11.8 billion capital investment plan, which could increase its rate base at an annualized rate of 5% through 2027 to $32.1 billion. These expansions could support its annual EPS (earnings per share) growth of 6–8% through 2027. With these growth prospects, the company’s management is optimistic about raising its dividend at an annualized rate of 6% over the next two years.
Dollarama
Dollarama (TSX: DOL) is my final pick. The company’s direct-sourcing model has eliminated intermediaries, thereby increasing its bargaining power. Additionally, its efficient logistics have lowered its expenses, thereby allowing it to offer various consumer products at attractive prices. Therefore, the Montreal-based retailer enjoys healthy sales, regardless of the macro environment.
Additionally, Dollarama has been expanding its store network in Canada and expects to add approximately 535 stores over the next nine years, increasing its store count in Canada to 2,200 by the end of 2034. It has also expanded into the Australian retail market by acquiring The Reject Shop, which operates 395 stores nationwide. The company expects to increase its store count in Australia to 700 by the end of 2031. Also, Dollarama owns a 60.1% stake in Dollarcity, which operates 658 stores in Latin America. Dollaracity is expanding its store network, aiming to reach 1,050 locations by the end of 2031. Considering these growth prospects, I anticipate that Dollarama’s financials will continue to exhibit an uptrend, which should support its stock price growth.
