Last week, the Canadian equity markets were under pressure, with the S&P/TSX Composite Index falling 1.5%. Substantial stock gains over the recent months appear to have made investors nervous, leading to a pullback last week. Rising treasury yields and ongoing tension in the Middle East are also causes of concern. Given the uncertain outlook, investors should look to buy defensive and dividend stocks to strengthen their portfolios. Here are my three top picks.
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Dollarama
Dollarama (TSX:DOL) is a discount retailer that operates 1,583 stores across Canada. Its superior direct sourcing and efficient logistics allow the company to offer a wide range of consumer products at attractive prices, thus enjoying healthy same-store sales even during a challenging environment. Supported by these solid sales and an expanding store network, the company has grown its revenue and net income at a CAGR (compound annual growth rate) of 11.5% and 18%, respectively, since fiscal 2011. These solid financials have driven its stock price higher, with the discount retailer delivering around 800% returns over the last 10 years at an annualized rate of 24.3%.
Besides, Dollarama is expanding its digital presence to enhance the customer experience and optimizing its operating processes to improve efficiency. It also plans to add 60–70 stores annually, thus raising its store count to 2,000 by the end of fiscal 2031. Also, it owns a 60.1% stake in Dollarcity, which operates 570 stores in Latin America. Further, Dollarama has an option to buy an additional 9.9% stake in Dollarcity by 2027. Given these growth prospects, I expect the uptrend in the company’s stock price to continue, thus making it an excellent buy.
Enbridge
Enbridge (TSX:ENB) would be a top dividend stock to have in your portfolio due to its regulated business, stable cash flows, and consistent dividend growth. The company earns around 98% of its cash flows from regulated cost-of-service and long-term take-or-pay contracts, thus shielding its financials from market volatility. Besides, around 80% of its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) is indexed to inflation. Supported by these predictable and consistent cash flows, the company has raised its dividend for 29 years at an annualized rate of 10%. With a quarterly dividend of $0.915/share, ENB currently offers a forward yield of 6.4%.
Further, Enbridge completed the acquisition of Public Service Company from Dominion Energy, thus marking the completion of the previously announced acquisition of three natural gas utility assets in the United States. Besides, the company is continuing with its $24 billion secured capital program, which would strengthen its liquids pipeline, natural gas transmission and distribution, and renewable asset base. Also, the energy firm’s financial position looks healthy, with liquidity of $18 billion as of June 30. Considering all these factors, I believe Enbridge could continue paying dividends at a healthier rate.
Waste Connections
Waste Connections (TSX:WCN) reported an impressive third-quarter performance last week. Its topline grew 13.3% amid a 6.8% increase in core pricing, a 90 basis points improvement in solid waste volumes, and contributions from acquisitions over the last four quarters. Its adjusted EPS (earnings per share) grew 15.4% from the previous year to $1.35. Also, its adjusted EBITDA margin expanded by 120 basis points to 33.7%.
Supported by its solid third-quarter performance, Waste Connections’s management has raised its 2024 guidance. The new guidance represents 11% revenue growth and 15.3% adjusted EBITDA growth compared to the previous year. Besides, management hopes its innovative approaches to improve employee engagement and retention will continue its financial uptrend next year. For 2025, the company expects mid-to-high single-digit revenue growth and high single-digit adjusted EBITDA growth. These projections do not include additional acquisition activities. Given its solid underlying business and healthy growth initiatives, I am bullish on Waste Connections despite the uncertain outlook.
