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Safe stocks are those companies that are less susceptible to economic turbulence, thus delivering stable financials. So, these companies help safeguard your capital while providing modest returns despite a challenging macro environment. Although the Canadian equity markets have made a great start this month, high inflation and the ongoing Israel-Palestine conflict are causes of concern. If you believe the market could turn volatile in the coming days, here are three safe Canadian stocks you can buy to strengthen your portfolio.
Waste Connections (TSX:WCN), a waste management company, would be my first pick due to the essential nature of its business. The company primarily operates in secondary or exclusive markets. So, it faces lesser competition, thus allowing it to enjoy higher margins despite its aggressive acquisitions. Supported by solid financials, the waste manager has delivered impressive returns of 590% over the previous 10 years at a CAGR of 21.4%.
Meanwhile, the waste management company has continued to drive its financials this year, with its revenue and adjusted net income growing by 12% and 5.3%, respectively. Besides, its adjusted EBITDA margins improved by 20 basis points to 31.2%. Despite solid financials, the company’s stock price has increased by only 1% this year. The concerns that the landfill issues in California and Texas could lower its fourth-quarter adjusted EBITDA and free cash flow by around $20 million have weighed on the company’s stock price.
However, the company’s long-term growth prospects look healthy as it expands its footprint across the United States and Canada through acquisitions. Besides, it pays a quarterly dividend of US$0.285/share and trades at an NTM (next 12 months) price-to-earnings multiple of 28.8, making it an attractive buy.
Canadian Utilities (TSX:CU) is involved in the electricity and natural gas transmission and distribution business. Besides, the energy infrastructure development company is also engaged in power generation and storage activities. With substantial earnings generated from utilities, the company’s financials are primarily stable, thus allowing it to reward its shareholders with consistent dividend growth. It has raised its dividends for 51 consecutive years, with its forward yield at 5.8%.
Meanwhile, Canadian Utilities is also expanding its rate base and expects to reach $16 billion by the end of 2025 at an annualized growth rate of 2%. Further, it also has several renewable power-generating projects in various developmental stages, which could boost its financials in the coming years. Given its low-risk and regulated businesses, healthy growth prospects, and higher dividend yield, I believe Canadian Utilities would be an excellent defensive bet.
Dollarama (TSX:DOL) is a discount retailer with an extensive presence across Canada. Thanks to its direct sourcing abilities and efficient logistics, it offers a wide range of consumer products at attractive prices. So, the company continues to witness solid same-store sales despite inflationary pressure. Its same-store sales grew by 16.3% in the first two quarters of fiscal 2024 while increasing its store count by 81 units compared to the previous year. Supported by these solid operating metrics, its revenue and diluted EPS (earnings per share) grew by 20.1% and 28.4%, respectively.
Besides, the company’s solid cash flows allow it to expand its store network. The company expects to add 60 to 70 stores every year, thus increasing store count to 2,000 by 2031. Also, its capital-efficient business model, quick sales ramp-up, and improving operational efficiency could continue to drive its financials in the coming years. So, I believe Dollarama would be a safe Canadian stock to buy in a challenging market environment.