Best Blue Chip Canadian Stocks
I recently published my list of Canada’s 100 largest 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 large A-list company with a strong 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. In searching for high-quality stocks, the top three performers are within a sector or industry, such as the Canadian banking industry. 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.
If you want to invest in growth stocks that are part of technology such as biotechnology, cannabis or disruptive blockchain space, 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 with 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 large 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 intrinsic 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 strong business model that has become a large company or a large market cap company. Huge companies enjoy an excellent reputation as large, established, financially sound companies operating with reliable returns that pay dividends to 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 in the country regarding assets, market capitalization and securities. In the years before the push-shop battle, RBC was the largest 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 own 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 wider market. Smaller companies in the top 50-100 companies on the TSX may offer greater 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.