The Canadian equity markets have staged a strong recovery from their March lows, with the benchmark S&P/TSX Composite Index advancing approximately 17% and gaining around 15% year to date. However, the market outlook remains clouded by several macroeconomic headwinds, including escalating geopolitical tensions, ongoing trade frictions, and persistent inflationary pressures.
Against this uncertain backdrop, investors may benefit from focusing on high-quality businesses with resilient fundamentals and defensive characteristics. Such companies can provide greater stability during periods of heightened volatility while maintaining the potential to generate attractive long-term returns.
With this in mind, here are two of my top Canadian stock picks that could help strengthen portfolios and provide resilience in the face of ongoing market uncertainty.
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Hydro One
Hydro One (TSX: H) is a pure-play electricity transmission and distribution utility with no exposure to power generation. Serving approximately 1.5 million customers across Ontario, the company generates roughly 99% of its revenue from regulated assets, providing highly predictable financial performance across varying economic conditions. Its rate base has also expanded at an annualized rate of approximately 5%, supporting steady earnings and cash-flow growth. Reflecting the strength of its business model, Hydro One has delivered a total shareholder return of approximately 93% over the past five years, representing an annualized return of 14%. The utility has also increased its dividend at an annualized rate of 5.4% since 2017 and currently offers a forward dividend yield of 2.7%.
Looking ahead, rising electricity demand, driven by economic growth, transportation electrification, and the rapid expansion of AI-ready data centres, should create a favourable long-term backdrop for Hydro One. The company is well positioned to capitalize on these trends, with 15 transmission line projects currently at various stages of development and construction. Meanwhile, population growth and ongoing residential development across Ontario could further increase demand for electricity distribution infrastructure and services.
These growth initiatives, combined with the essential nature of Hydro One’s operations and its predominantly regulated asset base, should support resilient financial performance across different economic environments. Given its defensive business model, predictable cash flows, steady rate-base growth, and exposure to long-term electricity demand trends, I believe Hydro One could be a compelling defensive investment in the current uncertain market environment.
Fortis
Another stock that could be an ideal defensive investment in the current uncertain macroeconomic environment is Fortis (TSX: FTS), which serves approximately 3.5 million customers across Canada, the United States, and the Caribbean through its nine regulated utility businesses. Its regulated asset base and predominantly low-risk electricity and natural gas transmission and distribution operations provide stable and predictable financial performance across economic cycles. This resilient business model has supported an average total shareholder return of 9.8% over the past 20 years. Fortis has also rewarded shareholders with 52 consecutive years of dividend increases and currently offers a forward dividend yield of 3.3%.
Looking ahead, Fortis is expanding its regulated asset base through its five-year capital investment plan, which could grow its rate base at an annualized rate of 7% through 2030, reaching $57.9 billion. Alongside these investments, the utility continues to focus on improving operational efficiency and leveraging innovation to control costs and enhance customer affordability. These initiatives should support sustained financial growth, while management remains confident in its ability to increase the dividend by approximately 4% to 6% annually through the end of this decade.
With its highly regulated operations, predictable cash flows, long-standing dividend-growth track record, and substantial investment pipeline, Fortis appears well-positioned to provide stability and steady growth amid an uncertain economic outlook.
