Blue Chip Stocks – What are They?
It is considered more defensive; blue-chip stocks can weather storms in the stock market. Moreover, they have a high recovery expectancy because of their established business and strong foothold. Blue-chip stocks are often well-established and have been financially stable for decades.
One exciting piece of information before moving on to some of the best blue chips stocks in Canada, though: the term ‘blue chip’ used in stock markets is derived from the game of poker. Blue chips are held to have the highest value, and as such, were the most important to keep in your stack. Now, let the stocks game begin.
The Stocks Game: 10 Best Canadian Blue Chip Stocks
Looking for the best blue-chip Canadian stocks you can add to your portfolio today? You’re in luck! We have got 10 of them today.
1. Barrick Gold
– TSE: ABX
Barrick Gold is among the most prominent gold stocks globally and has emerged more robust than before. It generates a considerable cash flow, making it one of the most diversified stocks in the industry. One of the world’s largest producers, this Toronto-based company came in with 4.8 million ounces of gold and 460 million pounds of copper in their 2020 production. They also had almost 68 million ounces of gold reserves and have well-positioned themselves to grow their production profile for the next decades.
Furthermore, Barrick Gold has been laser-focused on reducing its debt burden, down by over 50% in recent years. Looking at blue-chip options here in Canada, no one compares to Barrick Gold’s size and stability.
2. TC Energy
– TSX: TRP
TC Energy is one of the companies that transport various commodities. However, because of the fluctuations of oil prices, they have become less susceptible to damage.
Formerly known as TransCanada, TC Energy is among the best in the industry, one of the best-performing pipelines by quite a vast distance until 2020.
3. Canadian Pacific Railroad
– TSX: CP
Canadian Pacific Railway has made a dramatic move forward in the railroad industry. In July 2020, they extended their dividend-growth streak to five years by raising a 15% dividend. This move was a substantial raise – declared during which several other companies have either cut or already suspended dividends due to the pandemic.
Over the following years, expectations were for earnings growth that levelled the high single digits. This growth became a chance for acceleration. The company feuded with Canadian National Railway over the Kansas City Southern purchase. As a result, they recently underwent share splitting and have become more attractive to retail investors who couldn’t afford their lofty price tags before.
Nevertheless, there’s a lot to like about CP Rail. Forming a duopoly with CN Rail, rail has become the primary transportation of goods across Canada. It is also a solid defensive stock in light of the current pandemic.
4. Canadian Apartment Properties REIT
With better performing names in the area, Canadian Apartment Properties, or CAP, still provided an excellent value in Canada. In addition, they have a suite of affordable rent portfolios proving to be quite resilient.
CAP proves its relevance by currently trading at a 17% discount on cash flow value and a 14% discount on net asset value. Last June 2020, STP/TSX added them to the 60 Composite Index, tracking the most prominent companies by market cap on the TSX Index. CAP is the sole REIT among the Index counterparts. Now would be the perfect time to start accumulating Canada’s largest residential REIT.
5. BCE Inc – Bell
– TSX: BCE
BCE Inc is one of Canada’s largest telecom companies, often grouped with the “Big 3” – Telus, Rogers, and Bell. Their strength is practical product innovation and best in providing the fastest network possible to Canadians. Their success is reflected with 9 million subscribers as their customer base.
BCE is considered one of the best Canadian income stocks, yielding a dividend north of 5.5% and a growth streak of 12 years of dividend. They also have a market capitalization of more than $54B – a blue-chip stock that has been consistent and reliable for more than a decade now.
– TSX: MRU
Metro has a 26-year dividend growth streak tied for the 7th spot for the longest streaks in Canada. It is also one of the leading 10 to raise double-digits over three consistently, five, and ten-year periods.
As the pandemic subsides, there’s no doubt that consumer habits have abruptly changed, with some making permanent shifts to e-commerce orders due to its convenience. This will result in the expectancy of significant growth in Metro’s online sales moving forward.
In these periods of rising inflation, companies like Metro have the chance to outperform their competition. As a consumer defensive type of stock, Metro will outperform pure-growth plays in rising rate & inflationary environments.
7. Constellation Software
– TSX: CSU
Although starting to make headway, the technology sector is still significantly under-represented on the TSX Index. Compared to those south of the border, where technology constitutes almost a quarter of the known markets, the sector still accounts for having only a single-digit weighing on the TSX Index. This increase is changed notably from the 3% accounted for a couple of years ago. Yet, there is still arguably only one other company that could qualify as a genuine, blue-chip Canadian stock.
And with that being said – insert Constellation Software, one of the best-managed companies on the TSX Index. Over the past decade, this company’s stock prices have soared by more than 3600% and have one of the best track records in the tech industry. This company pays a modest dividend, but it incredibly makes up for what it lacks in income in its capital appreciation. If you have a $10,000 investment in the company 10-years ago, it would be worth over $350,000 at the time of writing – and this is not commanding some of the crazy valuations from today’s high-growth technology stocks.
Simply put, Constellation is the best consolidator in the tech industry. Its knack for acquiring other companies and seamlessly bringing them into their fold. It is also essential to recognize that tech is slowly becoming a defensive play in this new environment. The pandemic has rapidly accelerated the world into shifting to technology. And because of that, Constellation has become one of the top-performing tech stocks over the past year.
However, this is still a company that requires complete trust and support in its management. Although it does not hold quarterly conference calls, they provide annual letters to their shareholders. Thus far, putting trust in its leadership has proven a winning proposition. They also have high share prices, frequently trading in the $1900+ range. But this does make it extremely hard for investors who are only beginning and still have a small portfolio to buy the stock. With only having $5,000 or $10,000 to start with, this situation presents concentration risk. These factors could make Constellation more appealing and attractive to investment beginners with fractional shares or a potential share split.
8. Canadian National Railway
– TSX: CNR
The largest railway company in the country, Canadian National Railway, has become a no-brainer about the top blue-chip stocks here in Canada. Having over 33,000 kilometres of track, CN Rail’s engagement is dedicated to transporting forest, grain, coal, sulphur, fertilizer, automotive parts, among others. Moreover, CN is a company that has dividends growing at an impressively fast pace. It has a remarkable dividend growth streak of 25 years, with a five-year dividend growth rate of 12.97%. Unfortunately, this growth resulted in the stock’s consistent rise in price and a low yield. Don’t worry – CNR may lack yield, but it substantially makes up for capital appreciation.
Over the past ten years or so, CNR has returned more than 386% to its investors. This kind of performance out of some large-cap, blue-chip companies is awe-inspiring. CP Rail and CN Rail are some of North America’s best railways, the main reason why they both made this list. In addition, they are the only sector that featured two companies on this list, only proving how strong they are.
Before their infamous Kansas City Southern fiasco, CN Rail had been doing good and performing exceptionally over the last year. And now, with things seemingly settling in terms of their deal, CNR is slowly starting to regain its outstanding performance despite having a short-term slump of a mess. That KC Southern situation will take more or less a year before everything is resolved, and the feud between the Canadian railways is highly likely to continue. However, CN Rail’s acquisition attempts have already been shut down, with the likelihood of the railroad not making the acquisition.
The said dip in price due to the acquisition reminded us how Carrefour’s Alimentation Couche Tard acquisition failed. After releasing this said acquisition, it took a little over three (3) months for Couche-Tard to recover from their 20% dip in price. Moving forward, despite the size, CN Rail has been able to adapt, eventually, re-route and focus operations more on those customers that ran other essential services. Their handling of the pandemic has been somewhat rightfully lauded based on opinions from industry experts. Investors are indeed in good hands with CN Rail, and those short-term negative sentiments because of the acquisition attempt will, in our eyes, be forgotten right away.
Nowadays, Canada’s railways have become and are looking expensive. But even before, they have always looked expensive. If you’re looking to add, timing the CN or CP Rail market will likely be a wasted effort. Just scoop them up and tuck them into the core holdings of your portfolio.
9. Royal Bank of Canada
– TSX: RY
Probably one of the most popular stocks here in Canada, The Royal Bank of Canada is a global enterprise, with operations in Canada, the United States, and forty (40) other countries. It has been declared one of Canada’s most valuable brands for six (6) years straight, with a reputation second to none in terms of customer satisfaction. Royal Banks has a market capitalization of almost $180B, definitely one of the best blue-chip stocks you can add to your portfolio today. It has a strong dividend, yielding over 3% with a decade-strong dividend growth streak. In addition, its dividend is increasing at a fast and impressive pace, having a five-year growth rate of over 6.5%.
Although this pandemic caused banks to struggle, a similar theme is still occurring – solid and reliable dividends and earnings better than expected. With many countries asking banks to cut dividends or some being forced to because of the pandemic, big Canadian banks remained the safest income stocks on the planet. The Feds have asked banks to halt raising dividends, a minimal and reasonable request considering the current environment.
But now that we are slowly recovering from this pandemic and restrictions becoming more easeful, there is a big chance we will start seeing restrictions on dividend growth being removed. Along with all of the other significant Canadian banks, Royal Bank will likely raise dividends very soon after getting a signal. This company’s international exposure and sheer size were brought to attention during the COVID-19 pandemic, ending one of the more reliable Canadian stocks of 2020. That is why it is very worthy of its blue-chip title. With any of the Big 5 banks of Canada, you can’t go wrong. They are all superb examples of Canadian blue-chip stocks, and we would easily make our way onto this list. But with its superiority even among its peers, Royal Bank remains one of the best.
– TSX: FTS
No blue-chip stock list doesn’t have Fortis. If there is, it may not be that reliable, or you can keep looking. Fortis is among the top 15 North American utilities, with over ten (10) utility operations under its supervision in Canada, the United States, and the Caribbean. The utility industry is highly regulated, it often leads to consistent cash flows. And as the population keeps increasing, energy demands will grow right along with it, positioning utility companies to profit.
For 48 years, Fortis has had the second-longest dividend growth streak in the country, cementing it as one of the best investments in Canada and, no doubt, a sure bearer of the blue-chip title. It yields over 3.5%, with the company growing dividends at a 5-year rate of 6.79%, having payout ratios of under 60%. So, what is the eventual and helpful good news here? Fortis recently made extensions for its targeted annual dividend growth rate of 6% by 2025. So, investors can expect a significant 6% yearly rise in dividends in each of the next five years. Unfortunately, transparency and reliability are rare and quite hard to find nowadays. In addition, the rising interest rates seemed to have no negative consequences for the stock price of Fortis over the last few years. Thus, Fortis and its stocks are as close to a set and forget investment as you can get.
The Stocks Game: Final Words
In the end, blue-chip stocks are some, if not the best, investments for anyone out there. They come from stocks with national reputations for quality, reliability, and operating profitably in good and bad times. With that being said, having and owning a few blue chips in your portfolio will be worth your time and money.
But which ones to choose, you ask? That option is for you to discover and explore. Choosing the best stocks always depends significantly on the type of investment you want, specific risks, some age factors, and personal financial choices. However, there is one thing you can assure of – the earlier you start investing, the better you can eventually become. Investments you have will grow much faster and over some time with compounded growth if you start now. A couple of suitable investments begin as early as they could, so you see the magic among numbers.
Finally, there are investors in the market who are passive, mediocre, and aggressive. One thing for sure, though – by far, blue chips stocks are market-tested and proven adequate time and time again. In addition, these are the safest investments for all types of investors out there.
Best Blue Chip Canadian Stocks
I recently published my list of Canada’s 100 most extensive dividend stocks for 2020. When investors think of Canadian blue-chip stocks, they think of the best Canadian dividend stocks. As well as paying a consistent dividend, many of the companies on my list have something in common.
The term “blue-chip share” is somewhat vague, but in general, a blue-chip share is a sizeable A-list company with a solid financial balance sheet over many years. Our definition of a blue-chip stock has a high market capitalization and is a top company in its industry. The top three performers are within a sector or industry, such as the Canadian banking industry, searching for high-quality stocks. Still, various stocks could also be considered blue chips, even if they are not at the forefront.
Such companies tend to be safer and less volatile than other stocks that pay dividends. As a result, investors in blue-chip stocks rely on them for steady growth and their ability to pay dividends regularly. Penny stocks, which tend to sell for less than $5, are also known as micro-cap stocks or small-cap stocks.
Suppose you want to invest in growth stocks in technology such as biotechnology, cannabis or disruptive blockchain space. In that case, you need to include blue-chip companies as a significant percentage of your total portfolio to get the benefits mentioned above. Investors looking to build a portfolio of stocks to complement their portfolio of index funds and individual stocks known as “core” or “exploration” would be well advised to stick to North America’s largest and best-known companies. The attributes that make blue-chip stocks more conservative for younger investors with higher risk tolerances and longer time horizons make smaller stocks and top companies more attractive.
For example, investing in a company like British Petroleum provides investors access to the oil and gas sector and the commodity markets through its other businesses. As a result, there is no uniform definition of a blue-chip stock. Still, they all share common attributes, including strong balance sheets (including sizeable positive cash flows) and enduring business models that create fundamental and intrinsic value and returns that help them grow solid. In addition, each share has many measurable inherent qualities that bring them to this coveted club.
These companies are market leaders in their respective industries and have steadily increased shareholder wealth over time. However, for a company to deliver a steady, sustainable and growing dividend, it needs a robust business model that has become a giant or large market cap company. Huge companies enjoy an excellent reputation as large, established, financially sound companies operating with reliable returns that pay investors for many years.
The S & P / TSX 60 Index ranks Canada’s top companies by market capitalization and includes companies that have historically delivered stable returns with minimal volatility for investors. Companies in Canada’s financial sector make up a large share of the nation’s top stocks. There is no generally accepted benchmark for market capitalization above $5 billion, but the market leaders are companies of all sizes.
The companies listed on the TSX represent 70% of the market capitalization of all TSX-listed Canadian companies. Royal Bank of Canada is the largest bank regarding assets, market capitalization and securities. In the years before the push-shop battle, RBC was the most prominent Canadian company by market capitalization.
The company has been named one of Canada’s most valuable brands for six years in a row, and its reputation for customer satisfaction is unsurpassed. In addition, Fortis has increased its dividend 46 years in a row and, with energy consumption rising, the company is well-positioned to continue to deliver solid returns to investors. The company is a global company with offices in Canada, the United States and 40 other countries.
A growing number of investors prefer to build their portfolios of Canadian blue-chip stocks and secure their exposure in the US and internationally through low-cost ETFs. Investors can siphon off the top 20 Canadian blue-chip stocks, buy them, pay a low ongoing management fee and hold them in ETFs such as MER (XDV: 0.55) or XIC (MER: 006). However, investors who take a dividend approach to invest in blue-chip stocks should not stray too far from obscure or unknown companies or companies that have failed profitability tests or are in danger of cutting their dividends.
High-cap stocks that pay dividends often fall out of favour and do not beat the broader market. Smaller companies in the top 50-100 companies on the TSX may offer more significant growth potential, but they also carry higher risk. Look for companies that have paid high dividends to their shareholders in the past and see if they offer an attractive investment opportunity for you.
Remember that you should only decide to buy an individual share after extensive research and consultation with an investment professional. This is different from investing in growth stocks because growth stocks rely on their growth potential, not on their past results or prolonged price fluctuations over the long term.