After a strong rally in recent months, Canadian equity markets have become volatile amid valuation concerns and uncertainty surrounding the U.S. Federal Reserve’s monetary policy. The S&P/TSX Composite Index has been relatively flat this month but is still up more than 22% year to date. In this uncertain environment, I believe investors should strengthen their portfolios with defensive stocks to help stabilize returns and navigate the current volatility. With that in mind, here are my top three picks.
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Dollarama
Dollarama (TSX:DOL) is an excellent defensive stock with a tilt towards growth, given its healthy same-store sales even in a challenging macro environment and its continued expansion of its store network. Its superior direct sourcing and efficient logistics have lowered its expenses, thereby allowing it to offer various consumer products at attractive price points, which have led to healthy footfalls, irrespective of the macro environment.
Moreover, the Montreal-based retailer is expanding its store network, with plans to grow its Canadian footprint from 1,665 to 2,200 locations and its Australian network from 395 to 700 stores. Thanks to its efficient capital model, rapid sales ramp-up, shorter payback periods, and low maintenance capex requirements, this expansion is well-positioned to drive meaningful growth in both revenue and earnings.
Additionally, the company holds a 60.1% stake in Dollarcity, which operates 658 stores across Latin America. Dollarama also has the option to increase its stake to 70%, while Dollarcity plans to expand its network to 1,050 stores by the end of fiscal 2031. As a result, Dollarcity’s contribution to Dollarama’s net income is likely to grow in the coming years. Given these robust growth prospects, I remain positive on Dollarama despite the uncertain market environment.
Waste Connections
Second on my list is Waste Connections (TSX:WCN), a company that collects, transfers, and disposes of non-hazardous solid waste. By operating primarily in exclusive and secondary markets across the United States and Canada, it faces limited competition and benefits from higher margins. The company has expanded its footprint through both organic growth and strategic acquisitions, supporting robust financial performance and steady stock price appreciation. Over the past decade, Waste Connections has delivered returns of more than 540%, representing an annualized gain of 20.4%.
Moreover, with a strong financial position and healthy cash flows, WCN expects to maintain its active acquisition strategy in the coming quarters. The company is also investing in advanced technologies to enhance employee safety, improve operational efficiency, and boost overall productivity. Additionally, stronger employee engagement and improved safety metrics have helped reduce turnover and support margin expansion. Considering these positives, I believe WCN remains an attractive buy despite ongoing pressure from recycled commodity prices.
Hydro One
Another stock I consider an excellent buy in the current uncertain environment is Hydro One (TSX:H), a pure-play electric utility focused exclusively on transmission and distribution, with no exposure to commodity price volatility. The company benefits from stable, predictable cash flows, with 99% of its business rate-regulated. Over the past seven years, it has expanded its rate base at an annualized rate of 5.4%, supporting steady financial growth.
These fundamentals have translated into strong shareholder returns, with the stock gaining around 88% over the last five years—an annualized return of 13.5%. During this period, Hydro One has also increased its dividend at a 5.4% annualized rate and currently offers a forward yield of 2.47%.
Looking ahead, rising electricity demand is driving further expansion. Hydro One is executing an $11.8 billion capital investment plan that is expected to lift its rate base to $32.1 billion by 2027, representing a 6.6% annualized growth rate. Supported by this growth, management projects adjusted earnings per share to rise 6–8% annually through 2027. With its highly regulated asset base and ongoing expansion initiatives, I believe Hydro One’s upward momentum is well-positioned to continue in the coming years.
