Over the past decade, there has been an explosion of cheap, simple, and low-risk passive investment products such as ETFs and Income Funds that give investors a diversified portfolio of an index or theme. An index is a weighted average of a country or sector’s best companies, weighted by size/market capitalization. For example, the TSX Composite is Canada’s flagship index and, by that extension, includes some of the country’s biggest and resilient businesses. However, the diversification of indexes reduces returns over time. If an investor is willing to make an effort to analyze blue-chip stocks individually, they can make outstanding returns for themselves. Luckily for us, the best and most resilient blue-chip stocks exhibit certain characteristics that dramatically improve the odds of long-term success. Here are some of the qualities investors must look for in blue-chip stocks –
- Industry – A company’s line of business is essential for its long-term success. Over long periods of time, technology and disruption have been responsible for entire industries disappearing. For example, the rise of mobile internet and social media has had a very adverse impact on print media companies. A second example is the shrinking brick-mortar retail industry due to the rise of e-commerce. Hence, investors must look for companies in industries with a low threat of disruption, for example, food and banking.
- Barriers to Industry – Companies that operate in industries with high barriers to entry have a substantially higher probability of long-term success as it makes it difficult for other companies to enter the sector and capture market share or erode margins. High barriers to entry can be caused by factors such as capital intensity or government regulation—for example, power and utility companies.
- Brand Value/Trust/High Switching Costs – Companies in sectors where brand value and trust are key determinants of success have a high chance of long-term success because brand reputation takes a lot of time and effort to build. Companies that make products with high switching costs or rigid customer preferences enjoy the same advantage—for example, banking and cigarettes.
- Growth – Companies that are leaders in high-potential sectors like e-commerce have a high chance of long-term success. Their dominant market position in a growing segment allows them to grow significantly faster than the economy. Other examples include telecom because of growing digitization and connectivity.
- Cash Flow Generation – A company’s ability to generate cash is key to its long-term success. There is a reason behind the cash-flow statement being called the most important of the three types of financial statements. Companies with high cash flow enjoy many advantages such as cheaper debt, the ability to invest in innovation/research and development continues, strong dividend history/payouts, etc.
- Cyclicality – Companies in non-cyclical sectors such as power, food, utilities, and pharmaceuticals have more stable and predictable earnings than companies with discretionary products, thus giving them a higher probability of long-term success.
- Permanence – Over a long enough timeframe, technology has the ability to disrupt every industry in existence; however, some businesses will stand the test of time. For example, a major company may or may not exist 30 years from now. However, a piece of land or building on a prime street in the capital of a country will certainly exist and have appreciated over time due to inflation and the growth of the economy. The best way to invest in these is a REIT.
Canadian Stocks to Hold for the Long-Term
In this article, we will discuss some of the best long-term stocks to buy in Canada –
Bell – BCE (TSX: BCE)
Sector – Telecom
Dividend Yield – 5.32%
Market Capitalisation – C$59.5 billion
BCE is one of Canada’s largest conglomerates; its core business is telecommunications. The company is the largest player in the telecom oligopoly, which includes Telus and Rogers. The company demonstrates multiple characteristics of a good long-term investment, such as growth prospects, barriers to entry, low cyclicality, and brand value.
BCE reported revenues growth of 6.4% and net earnings of C$734 million (up 149% YoY). More importantly, the company reported a 75% increase in mobile connectivity users, which will be the key growth driver for the company in the years to come. The company is very well capitalized with available liquidity of C$5.3 billion. BCE aims to cover 70% of Canada with 5G connectivity by the end of the year, which put it in pole position to dominate in the 5G stocks era, where connectivity is expected to grow multi-fold due to smart devices and IoT.
Canadian National Railway (TSX: CNR)
Sector – Transport and Travel
Dividend Yield – 1.55%
Market Capitalisation – C$11.2 billion
The Canadian National Railway’s objective is to provide Canada with a robust rail and transport infrastructure. The company operates in a heavily regulated sector with high capital intensity, low competition, less cyclicality, and high growth prospects. The CNR has great opportunities to grow in the years to come because of the rise of e-commerce. The shift from brick-and-mortar retail to e-commerce is a shot in the arm for the transport sector as no form of logistics can move cargo at the speed, reliability, and cost of rail.
In Q2, CNR reported revenues of C$3.59 billion and earnings of C$1.38 billion (up 76% YoY). In addition, the company has generated C$1.28 billion in cash flow so far this year. While revenues grew 12%, the company was able to lower costs by 9%. As a result, the operating margin for the quarter was 61%.
Algonquin Power and Utilities (TSE: AQN)
Sector – Power and Utilities
Dividend Yield – 4.36%
Market Capitalization – C$12.1 billion
Algonquin Power and Utilities are one of the biggest power companies in Canada. This stock is so attractive because it is the industry leader in renewable energy, which is almost definitely the direction of the industry. The company has been growing exceptionally well over the past decade as it has gone up 350% and has also consistently grown its dividend over that period. The power sector has high barriers to entry as it is very capital intensive, government-regulated and green energy has great growth prospects. It also exhibits very low cyclicality.
In Q2’21, the company reported revenues of C$527.5 million (up 54% YoY), EBITDA of C$244.9 million (up 39% YoY), and net earnings of C$91.7 million (up 93% YoY).
Metro (ASX: MRU)
Sector – Retail, Pharmacy, and Consumer Staples
Dividend Yield – 1.55%
Market Capitalization – C$15.8 billion
Metro is one of the most recognizable names in Canada as it operates one of the largest retail and pharmaceutical chains in the country. The company has a very recognizable brand, which gives customers assurance of quality, which is very important is sensitive products like pharmaceuticals. The company has great growth prospects as it is making meaningful efforts to grow its online business. They have a competitive advantage over pure digital players because it is omnichannel with an online and offline presence, thus giving them far more reach and efficiency. The company has compounded wealth at 16% CAGR over the past decade and has consistently grown its annual dividend for the past 25 years.
The company reported a massive 100% YoY growth of C$5.71 billion, EBITDA of C$533 million (up 4.4% YoY), and net earnings of C$252 million.
Royal Bank of Canada (RY.TO)
Sector – Banking
Dividend Yield – 3.34%
Market Capitalization – C$184.5 billion
Royal Bank of Canada is one of the country’s oldest institutions and its oldest bank. RBC has a brand name and reputation, which is second to none; this is a huge advantage as money is a trusted business. Further, banking is a core sector; without it, an economy cannot function. It is also extremely cash-generative. With the wave of digitization that we are in, banks can reach far more customers than they ever could, and RBC’s strong reputation will play to its advantage. The company has compounded wealth for investors at 11.59% CAGR over the past decade.
In Q3’21, the company reported a net income of C$4.3 billion (up 10% QoQ, and 19% YoY), EPS of C$2.66 (up 11% QoQ, and 19% YoY), and an ROE of 18.6%.
Pembina Pipeline (TSX: PPL)
Sector – Energy Transport (Natural Gas Infrastructure)
Dividend Yield – 6.47%
Market Capitalization – C$20.14 billion
Pembina is one of Canada’s biggest energy companies. While the company does not mine or drill itself, it provides companies with infrastructure and processing facilities. Pembina owns over 18000 km of pipelines and 19 gas processing facilities. The natural gas sector has great room to grow as it is increasingly being used to replace thermal coal power plants due to its more environmentally friendly nature. However, the sector is also heavily regulated and very capital intensive; hence it has high barriers to entry. Further, it has very low cyclicality because natural gas is a core necessity in Canada for heating and cooking purposes. Nevertheless, the stock has delivered 124% to investors over the past decade.
In Q2’21, the company reported C$894 million in revenue (up 15% YoY) and net earnings of C$254 million.
Brookfield Asset Management (TSX: BAM.A)
Sector – Financial Services
Dividend Yield – 0.92%
Market Capitalization – C$111.7 billion
Brookfield is one of the world’s most respected asset management firms. Of late, it has been increasingly being active in renewable energy. This company makes a great long-term bet because it is less prone to disruption and its operations are very diversified. The company manages nearly US$600 billion of assets across power, renewable energy, infrastructure, debt, private equity, etc. Being a manager of big-ticket investments is unlikely to be disrupted because it is a reputation and relations game that cannot be automated. Further, the company’s renewable energy endeavours have placed it in good stead to thrive in the years to come.
Brookfield had a rough 2020 due to write-downs on various assets on account of the pandemic. However, the company has bounced back strong, having generated a net income of US$2.4 billion and a free cash flow of US$1.6 billion. Further, the company raised US$24 billion of fresh capital over the quarter, US$9 billion for real estate, and the rest for infrastructure/power.
Barrick Gold (TSX: ABX)
Sector – Mining
Dividend Yield – 1.78%
Market Capitalization – C$45.2 billion
Barrick Gold is one of the world’s biggest miners, with 16 mines across 13 countries. The company has a global reputation for being the foremost gold miner in the world. Its stellar reputation gives it a big competitive advantage as authenticity, purity, and quality are very important in a precious metals business like gold. Further, it has a very bright future due to its copper business, which is crucial for sustainable tech and decarbonization. The company is also very cash-flow generative as it benefits from operating leverage, meaning that its inflation-adjusted cost price does not go up with the sale price of its products. In a high inflation world with low interest rates, gold is set to boom over the long term, and so is cooper due to demand from EVs, batteries, and turbines.
In Q2’21, the company reported net earnings of $411 million (up 15% YoY). Barrick reported an all-in cash cost of $1087/pound for gold vs. an average sale price of $1802/pound. For copper, the all-in cash cost of $6033/ton vs an average sale price of $10063/ton for copper. This shows the company’s huge margins, cash flow, and profit potential. The business is also very unlikely to be disrupted due to high barriers to entry from capital intensity, the permanence of gold and copper as high-demand products, and the company’s reputation.
Shopify (TSX: SHOP)
Sector – E-commerce
Dividend Yield – None
Market Capitalization – C$242.9 billion
Shopify shocked everyone when it gradually ascended to become Canada’s largest company by market capitalization. Shopify is one of the rare breeds of tech companies that scale to profitability in a relatively short time. The company operates an e-commerce-as-a-service platform that allows SMEs and corporations alike to build online retail platforms of their own. They provide turn-key company formation, payments management, store design, inventory management, logistics, and digital marketing solutions, all in one product. The company is the undoubted leader in its field and is touted by some as a future competitor to Amazon. The pandemic came like the wind under the company’s wings as it forced businesses all over the world to digital.
Shopify has a multi-tiered operating structure. First, it gets a flat subscription fee from all users, thus giving it a predictable and stable revenue, along with a cut of the Gross Merchandise Value (gross value of all products sold on the platform) and the financial transaction value.
In Q2’21, the company reported revenues of $1.57 billion (up 57% YoY). Subscription fees for the quarter were $334 million (up 70% YoY), and volume-driven fees were $785.2 million (up 52% YoY). After adjusting for a one-time abnormal gain, the company reported a net profit of $284.6 million (up 119% YoY).
Canadian Apartment Properties REIT (TSX: CAR.UN)
Sector – Real Estate
Dividend Yield- 2.33%
Market Capitalization – C$10.71 billion
Real estate is a must-have investment for every serious investor. REITs are designed to give owners fractional, cheap, hassle-free, yet pure ownership of real estate. The real-estate segment is largely disruption-free because of its nature, the high productivity and potential for land value creation, the permanence of land, and the ever-increasing demand for high-quality real estate. This REIT owns almost 60000 residential units in Canada and over 5500 in the Netherlands. Real estate does particularly well in inflationary periods, such as the one we are in.
In Q3’21, the company reported almost $229 million in operating revenue (up 4% YoY), 97.2% occupancy rate, and net rental income of nearly $152 million (up 5.9% YoY).
In today’s world, bank savings rates lag inflation, which means the traditional formula of saving in the bank till retirement will erode wealth, thus making personal finance extremely important. While ETFs and Income Funds are great for passive and hands-off wealth creation, investing in the right stocks can be extremely rewarding for those willing to make an effort. We hope you like this article and consider investing in some of these companies.
Long Term TSX Stocks to Buy Now
The Motley Fool Canada Market-Beating Team has released a new free report revealing the 5 best Canadian stocks for 2021 and beyond. We think these stocks are undervalued at the moment, which makes Canadian investors happy. The first post The 5 best Canadian stocks to buy now for 2021 and the long-term appeared on Motley Fool Canada.
Below is a brief excerpt of the Top 10 dividend stocks and opportunities identified by Canadian dividend stock screening firms. However, before we turn to the best Canadian dividend stocks, a few questions need to be asked to put them into perspective.
After dividend stocks are assessed based on yield and growth, investors can build a portfolio of dividend-paying dynamos. Check the Chowder rules (three-, five- and ten-year ratios, dividend growth, EPS growth and payout ratios) to pick solid investments for your portfolio. Note that dividends are not guaranteed – one way to screen companies that are in danger of cutting or cancelling their dividends is to look at the dividend ratio of companies.
Sticking with Blue-chip dividend stocks can help investors weather market storms, as steady dividends come even when the market is rocky. Sticking with blue-chip dividend stocks helps investors whether the market storm and steady dividend payments will continue to come as markets rock. With a dividend ETF, you can instantly diversify your investment dollars into companies with a strong dividend profile. In addition, stocks that increase their dividend payouts tend to perform well over the long term, owing to their propensity for value and profitability.
Companies with strong growth prospects: Amazon, Facebook, Netflix We all have our favourite stories in stocks, and it can be fun to invest your money in them and ride with them.
Growth stocks tend not to pay dividends, but at least when they mature, like Apple, there is the potential for capital gains. After months of underperformance, growth stocks look more attractive than ever from a valuation point of view.
The top 11 growth stocks to buy for the rest of 2021 appear poised to push upward at least until the end of 2021, if not longer. These stocks have the highest valuation on the news, as the POWR rating system classifies stocks based on dozens of fundamental indicators. Canadian Natural Resources has an overall rating of B Buy from PwC.
Canadian stocks and the Toronto Stock Exchange, in general, had a poor record on returns. However, the fact that you can look at some of Canada’s top stocks shows that you believe there is value at home.
Despite sharp recoveries and rallies, increased volatility and overextended valuations have made investors cautious. Simply put, investors are just beginning to reopen stocks in the post-COVID world. Nevertheless, if you are a long-term investor, many Canadian stocks with solid fundamentals and several growth catalysts could make you rich.
Investors are doing this by investing in many growth stocks that have delivered incredible returns in recent years despite the sell-off. If you are an investor who has seen your growth stocks sell off and wants to help reopen stocks that will all benefit when the economy restarts in the second half of 2020, consider some of the stocks listed below. Research companies that plan for the next decade and are looking for companies with long-term growth potential.
In addition to a company’s growth potential, I am also looking for sectors that have strong tailwinds. So here are two top TSX stocks that are perfect for long-term investors to help start your portfolio. Both companies have impressive success stories in the market, and there is no sign of an imminent end.
TD Bank is one of the best companies to invest in value and safe, guaranteed returns. The stock emerged strongly from the economic collapse and has proved to be a top contender among Canadian stocks for decades to buy and hold. Of course, you won’t make a quick profit with TD Bank, but you will get long-term returns with a dividend yield of four percent.
After years of personal dividend investing, I have concluded that dividend stocks are rocking. You assess them by their dividend triangle, which is the best long-term way to value solid Canadian companies. While statistics are best about trying to jump into the market, it’s worth trusting your reasons for selecting a stock so that you don’t get hung up on your shares and are afraid of the greed of others. So instead, buy more shares of your favourite dividend stock at any price. Personally, I never sell my dividend shares unless I have faith in their long-term growth.
Market orders can be used to buy stocks that do not experience large price swings, such as large, stable blue-chip stocks, rather than smaller, more volatile companies. Market orders are best for buy-and-hold investors, as small price differences are important to ensure that the trade is executed correctly.
Other options include using a full-service stockbroker to buy shares in a company. You can also hold shares through exchange-traded funds (ETFs) – either bought through a brokerage platform or a Robo-adviser. After opening a fund in your account, you can buy shares directly from the broker’s website in minutes.
If you are a novice looking to buy shares in Canada, we recommend using Questrade or Wealthsimple to trade. This guide discusses how to invest in shares, the best share-dealing platforms, the pros and cons of buying shares, how to tax your portfolio and more. Stocks, also known as stocks and shares, are among the most important asset classes available to investors.
Under the Walt Disney Company umbrella, you will find ESPN, Fox, Marvel, Lucasfilm (Star Wars), National Geographic, and a large range of holiday-oriented locations and services worldwide. Suffice it to say that anyone who wants to see a Disney film or TV show today and in the future can visit one of the company’s many theme parks. As a result, I think that Disney is a solid buy-and-hold product for beginners because of its huge reach and ability to engage customers of all ages around the world.