3 TSX Stocks With Impenetrable Economic Moats

TSX stocks like Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP) have durable competitive advantages.

What’s the easiest way to be certain that a stock has a great future ahead of it?

A great candidate for an answer to that question would be “an economic moat.”

An economic moat is a durable competitive advantage that keeps a company’s revenue streams safe from competitors. One straightforward example of a moat is a government-enforced monopoly. Another is an extraordinarily high barrier to entry.

A slightly more subtle type of moat is a strong brand: if a brand draws customers to a certain product, then it captures at least that portion of the market from its competitors, even if they sell a functionally identical product.

Of course, the mere presence of a moat doesn’t guarantee that a business will be a success. However, it combined with the usual financial elements investors look for can go a long way. With that in mind, here are three Canadian stocks with deep moats you can count on to keep the underlying businesses safe.

Canadian Pacific Railway (TSX:CP)(NYSE:CP)

Canadian Pacific is one of Canada’s two major railways. For a company that’s been around over 100 years, it’s growing remarkably quickly, increasing its adjusted earnings at 41% in its most recent quarter. As a railway company, Canadian Pacific enjoys a solid moat in the form of high barriers to entry. The railway business is enormously capital intensive, so any potential competitor would need to spend billions of dollars to enter the market and compete. That’s a moat you can count on.

Fortis (TSX:FTS)(NYSE:FTS)

Fortis is one of Canada’s largest non-state-owned utility companies. With assets all across Canada, the U.S., and the Caribbean, it has a huge footprint. The company is also making investments in natural gas, having recently acquired the Aitken Creek storage facility in B.C.

As a regulated utility, Fortis enjoys two moats: infrastructure and government regulation. Utilities operate on established infrastructure networks in their service areas, which, in many cases, they own outright. Sometimes, the building of additional electrical infrastructure is not permitted by government regulations, so that adds a second layer of protection to an established utility company’s business.

Canada Goose (TSX:GOOS)(NYSE:GOOS)

Canada Goose is a clothing company that has an enormous market share in high-priced winter parkas. The company’s parkas are unique for their high levels of insulation, trademark arm patch, and coyote fur hoods. Ever since Canada Goose became popular, a number of competitors making similar parkas have come and gone. So far, not a single one has managed to sell similar parkas in similar numbers at the same price point.

This is a classic example of a moat built on a brand. People buy Canada Goose parkas in no small part because of the name “Canada Goose.” So, a perfect or even superior knockoff wouldn’t sell as well, even if much cheaper, because it lacks the name recognition. This provides enormous benefits to Canada Goose’s sales, which can be seen in the company’s 50% year-over-year revenue growth.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned.

More on Dividend Stocks

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »