Financial Insights That Matter
Written by Rajiv Nanjapla at The Motley Fool Canada
The escalating trade war has shaken investors’ confidence, dragging the equity markets down. The S&P/TSX Composite Index fell 6.5% from its all-time highs. Amid weakening investors’ confidence, investors should look to buy quality defensive stocks to sail through this uncertain outlook. Against this backdrop, let’s look at my three top defensive bets.
Waste Connections (TSX:WCN) is an excellent defensive stock to buy in this uncertain outlook due to the essential nature of its business, consistent financial growth, and impressive historical returns. The waste management company operates in the United States and Canada, with around 86% of revenue generated from the United States business and the remaining 14% from Canadian operations. It focuses primarily on secondary and exclusive markets, thus facing lesser competition and enjoying higher margins. Also, it has expanded its footprint through organic growth and acquisitions, driving its financials and stock price growth. Over the last 10 years, the company has posted 490% returns at an annualized rate of 19.4%.
Moreover, I expect the uptrend in WCN’s financials to continue amid organic and inorganic growth. It is progressing with the development of renewable natural gas and resource recovery facilities, and continues to focus on adopting technological advancements to improve operating efficiency and employee safety. Further, improved employee engagement has reduced employee turnovers, thus supporting its margin expansions. Amid these growth initiatives, the management projects its topline to grow by 6.8% this year. At the same time, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) could expand by 50–80 basis points. Considering all these factors, I believe WCN would be ideal for this volatile environment.
Hydro One (TSX:H) is a pure-play electric utility company that serves 1.5 million customers across Ontario. The company’s financials are less prone to challenging macro factors, with 99% regulated assets and no exposure to power production or commodity price fluctuations. Besides, the company’s growing rate base (at a 5% compound annual growth rate since 2018) and adoption of cost-cutting initiatives have boosted its financials, thus supporting its dividend growth. The electric utility company has increased its dividends at an annualized rate of 5% since 2016, while its forward dividend yield stands at 2.6% as of the March 13 closing price.
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