In times of trouble, it’s always helpful to remember a key Warren Buffett quote: “Be fearful when others are greedy and greedy when others are fearful.”
Essentially, what Buffett is pointing out is that if you follow the herd mentality, it’s likely you will either lose money or your returns will be sub-par.
Instead, use opportunities like this past week to add high-quality stocks to your portfolio that you have maybe been eyeing for a while, waiting to get to get an opportunity to buy it at a discount.
Buying stocks when the market is selling off will go directly against your impulses, but if you buy a high-quality business, there shouldn’t be any fear or worry and no need to sell stocks just because the market is going through a temporary correction.
Although it’s still early and we don’t know the full effect of this market crash or what will eventually happen with the economy, it’s safe to say that major businesses, such as Enbridge or a BCE, will still be around in 20 years’ time.
So, if you are buying best-of-the-best business and you plan to hold forever, there shouldn’t be a problem.
Although markets have cooled down for the first few days of trading this week, there are no guarantees that the volatility is completely behind us, so be prepared to pounce on any further opportunities, as valuations continue to create major long-term opportunities.
Two Dividend Aristocrats, for example, that were sold off more than 5% last week and could potentially fall even further if the market rout continues are Pembina Pipeline (TSX:PPL)(NYSE:PBA) and A&W Revenue Royalties Income Fund (TSX:AW.UN).
Pembina Pipeline
Pembina is a $25 billion energy infrastructure company in Western Canada with diverse pipeline assets as well as numerous gas-processing plants.
The company is extremely reliable and has well-run operations and a natural competitive advantage.
Its business has been growing consistently, which has allowed it to grow its dividend by 40% over the last five years, or a compounded annual growth rate (CAGR) of nearly 7%.
Currently, the dividend yields more than 5% — an attractive yield given how sustainable it is. Plus, it’s well positioned financially, so you don’t have to worry about its health if we do enter a prolonged recession.
Even at today’s prices, the company has wonderful value trading at just 18.3 times its trailing earnings, but if we see the sell-off continue, Pembina will be extremely undervalued, offering investors the most opportune time to buy this stock in the last decade.
A&W Revenue Royalties Income Fund
A&W is the best TSX restaurant royalty company that you can buy today, as it’s been rapidly separating itself from the rest of its peer group.
Same-store sales growth (SSSG) is the most important thing when it comes to royalty companies, since the royalty they receive is on revenue. Because most royalty funds have relatively flat costs year over year, SSSG effectively determines the pace at which the dividend can grow long term.
If SSSG is decreasing, eventually the dividend — which these funds keep at a 100% payout ratio — will need to be cut, which is exactly what happened to Boston Pizza earlier this month, just a week after I warned investors to avoid the stock.
A&W, however, continues to see its SSSG increase; it just recently reported 4.1% growth for 2019. The continuously impressive SSSG is a direct result of its strong marketing campaigns paying off in addition to its healthier menu options resonating with consumers.
The popularity of its restaurants, as evidenced by its strong SSSG, has allowed it to increase its dividend by 33% over the last five years, or a CAGR of 5.8%, and today it currently yields upwards of 5.35%.
Bottom line
These are two of the best and most reliable income-generating stocks on the TSX, and, at current prices, look extremely attractive. If the market sell-off continues, look to these stocks first, as the value will be unmatched and impossible to pass up.
