Recently, CIBC World Markets released a report that found that Canadians are increasing their cash holdings at the fastest rate in four years. Last year, Canadians grew cash holdings by 11%, and overall Canadians are expected to be holding a record $75 billion in cash.
Overall, this should not come as a surprise—the TSX has been increasingly volatile recently, and 2015 saw the market down 11%. At the same time, there is plenty of uncertainty going forward.
While holding cash can protect investors against uncertainty, it also means lost investment returns. A better approach is to buy stocks that are low risk and underpinned by stable business models. Three excellent ideas are Brookfield Infrastructure Partners L.P (TSX:BIP.UN)(NYSE:BIP), TransCanada Corporation (TSX:TRP)(NYSE:TRP), and Agrium Inc.(TSX:AGU)(NYSE:AGU).
1. Brookfield Infrastructure Partners
Brookfield may be one of the most conservative names to own. This is because Brookfield owns infrastructure assets, including ports, railroads, toll roads, metro systems, and airports. The important thing about these kinds of assets is that they are long life, have very high barriers to entry (and low competition), have very stable cash flows, and require little capital expenses to maintain.
These assets have stable cash flows because they are underpinned by long-term contracts or by government regulation. This means that Brookfield is often guaranteed to earn a certain return on its investments. When a company has long-life assets with stable cash flows and little competition, the results are very stable shares. As a result, Brookfield pays a healthy yield of over 5% that is growing annually.
The best part about Brookfield is that it also has an excellent growth trajectory. The company sees earnings growth every year due to inflation increases that are provided as part of its contracts as well as GDP growth. In addition, the company is also reinvesting its own cash flows to grow the business.
The business is also growing via acquisitions, and the company has used acquisitions to successfully increase its market capitalization nearly 20 times since 2008. This makes Brookfield a safe place to find growth in a volatile market.
2. TransCanada Corporation
Like Brookfield, TransCanada also owns stable assets. In TransCanada’s case, the business has three segments: an oil/liquids segment, a natural gas segment, and a power generation segment. It is important to note that even though TransCanada does have exposure to oil via pipelines, it has no direct exposure to oil prices. Over 90% of TransCanada’s earnings are regulated or contracted, which allows TransCanada to cover its costs and earn a return on capital with little risk.
While there has been much news about TransCanada’s large-scale projects and if they will be implemented (Prince Rupert Gas Transmission, and Energy East), it is important to know that even if none of these projects go through, TransCanada still has $14 billion in certain and near-term growth projects. These projects will drive an 8% annual growth rate through to 2018 with potential for another 8% annual growth rate through to 2020.
If TransCanada’s large-scale projects go through, this growth rate will be 14% annually and, regardless of the large-scale projects, TransCanada is set to grow its dividend by 8-10% annually through to 2020. TransCanada also has plenty of opportunities for new investments, especially in Mexico. Mexico is investing heavily in natural gas and has several billion in projects it plans on rewarding in 2016.
3. Agrium Inc.
Agrium is slightly riskier than TransCanada or Brookfield, but it is important to note that throughout all the market volatility in 2015, Agrium ended up returning 13%, plus its dividends.
Agrium produces fertilizer including nitrogen, potash, and phosphate, and it also has retail operations (the largest in North America), through which it distributes these products. It also sells seeds, crop protection productions, and merchandise.
Agrium’s retail operations are extremely stable and help to support the company’s 3% dividend yield. Both the company’s retail and wholesale fertilizer product segments have strong growth trajectories as agricultural markets improve.
