Alert: This Key Warren Buffett Metric Is Flashing Green on These 3 Top Stocks

This trio of high-ROE stocks, including Toronto-Dominion Bank (TSX:TD)(NYSE:TD), can instantly enrich your portfolio.

| More on:
Growing plant shoots on coins

Image source: Getty Images

Hi there, Fools. I’m back to highlight three solid companies with a consistently high return on equity (ROE). As a quick refresher, I do this because high-ROE businesses usually display two important qualities:

  • a strong management team that prioritizes efficient use of shareholder capital; and
  • a durable competitive advantage that translates into above-average industry profits.

As the legendary investor Warren Buffett once said, “[T]he best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.”

Let’s get to it, shall we?

Railway to heaven

Leading off our list is railroad giant Canadian Pacific Railway (TSX:CP)(NYSE:CP), which consistently chugs out an ROE in the 30-40% range.

CP utilizes its economies of scale, cost advantages, and impenetrable barriers to railroad entry to deliver consistent results for shareholders. Despite a challenging winter and a 180-basis-point increase in its operating ratio, CP’s Q1 revenue grew 6% and diluted EPS jumped 28%.

On that strength, management pumped the quarterly dividend 28% to $0.83 per share.

“I thank our customers and stakeholders for working with and supporting CP over the past few months,” said CEO Keith Creel. “As we look forward, we remain confident in our ability to deliver record financial and operating results in 2019.”

CP shares are up 21% so far in 2019.

Perfect play

With a ROE in the low-20s, toy technologist Spin Master (TSX:TOY) is next up on our list.

To be sure, Spin Master has suffered of late due to the closure of retail toy giant Toys “R” Us. In the most recent quarter, revenue decreased 16.3%, gross margin declined 700 basis points to 45.1%, and free cash flow clocked in at a negative US$39.8 million.

That said, Spin Master continues to boast an impressive stable of brands as well as strong organic growth upside.

“We manage Spin Master for the long term and as we execute through the tail-end of a very disruptive retail environment, we are confident that we are well positioned to drive profitable long-term growth,” said Chairman and Co-CEO Ronnen Harary.

Spin Master shares are up 10% in 2019.

Green monster

Rounding out our list is banking behemoth Toronto-Dominion Bank (TSX:TD)(NYSE:TD), which consistently boasts a ROE in the mid-teens.

TD continues to lean on its solid deposit mix, leading market share position, and highly favourable regulatory environment to provide consistent strength for investors. While TD’s wholesale segment declined in Q1, adjusted income for TD’s Canadian and U.S. retail segments improved 6% and 21%, respectively.

Management even hiked the quarterly dividend 10% to $0.74 per share.

“TD’s Retail segments in both Canada and the U.S. had a strong start to the year, with continued revenue growth and solid earnings,” said President and CEO Bharat Masrani. “However, market volatility and lower client activity impacted our Wholesale segment in the quarter.”

TD shares are up 9% so far in 2019 and offer a healthy dividend yield of 3.7%.

The bottom line

There you have it, Fools: three high-ROE business worth checking out.

As always, they aren’t formal recommendations. View them, instead, as a starting point for more research. Even high-ROE companies can disappoint if you don’t pay attention to the risks, so plenty of due diligence is still required.

Fool on.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Motley Fool owns shares of Spin Master. Spin Master is a recommendation of Stock Advisor Canada.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »