Investors have got to tread carefully. It’s an all-time-high market when there are still uncertainties, such as how well global vaccine programs against the pandemic will execute.
There’s a meaningful proportion of the Canadian stock market in the energy and materials sectors. Specifically, energy and materials are about 13% and 15%, respectively, of the TSX index.
Stocks in these sectors can be more unpredictable. Investors need to tread carefully around these sectors (time the buys and sells carefully) or avoid them altogether. Here are three stock tips to help you improve your long-term returns.
Get passive income from stable dividends
One sure way to get consistent returns is to earn passive income from dividends. You can explore safe dividends in traditional businesses such as banks, utilities, and telecoms.
Here are the dividend yields of the Big Six Canadian banks:
- Royal Bank of Canada: 4.09%
- Toronto-Dominion Bank: 4.41%
- Bank of Nova Scotia: 5.27%
- Bank of Montreal: 4.36%
- CIBC: 5.24%
- National Bank of Canada: 3.94%
Here are the dividend yields of some popular utilities:
- Fortis: 3.81%
- Emera: 4.70%
- Brookfield Renewable Power: 3.38%
- Brookfield Infrastructure: 3.74%
- Algonquin: 4.03%
And here are the Big Three telecom yields:
- BCE: 5.72%
- Rogers Communications: 3.30%
- TELUS: 4.85%
Invest in growing businesses
Other than banks, utilities, and telecoms, you can also stick with proven sectors like technology. Essentially, you want to invest in businesses that are growing. Banks, utilities, and telecoms tend to grow at a rate that’s faster than inflation in most years.
You can find even greater growth in technology stocks. A prime example is Shopify, which lets merchants sell online on its multi-channel e-commerce platform. In Q3, its revenue was 96% higher year over year!
The growing components of businesses will drive long-term price appreciation in stocks. It could help to boost returns if you buy after stock corrections or consolidations.
Diversify away from Canada
As mentioned earlier, because materials and energy make up a meaningful part of our economy, Canadian portfolio performance may be weighed by those sectors when the economy is in turmoil.
Canadian investors should diversify away from Canada and invest globally. Notably, some of our banks and utilities do have some international operations. But there are even more investment choices as close as our neighbour south of the border.
It can be costly to invest in a number of individual stocks that you’re interested in outside of Canada. Trading fees can add up quickly. If so, you can consider investing in exchange-traded funds (ETFs) in growth areas you’re interested in.
For example, I recently discovered Global X Social Media ETF under the ticker NASDAQ:SOCL, which looks highly promising and could be an incredible buy on corrections.
The ETF provides exposure to global social media companies. You’ll probably recognize its top holdings, including Snap, Facebook, Tencent, Twitter, and Match. These top five holdings make up about 42% of the ETF’s net asset value.
From the market crash bottom earlier this year, SOCL has more than doubled by appreciating 128%. ETFs are a low-risk and low-cost way to invest in a specific area. You’re getting exposure to a basket of companies, which should reduce volatility.
The Foolish takeaway
Try these three tips to improve your returns for the year 2021 and beyond. Specifically, get passive income from safe dividends, invest in growing businesses, and diversify away from Canada.
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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.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Fool contributor Kay Ng owns shares of Brookfield Infrastructure Partners, Facebook, Royal Bank of Canada, Tencent Holdings, The Bank of Nova Scotia, and The Toronto-Dominion Bank. David Gardner owns shares of Facebook and Match Group. Tom Gardner owns shares of Facebook, Shopify, and Twitter. The Motley Fool owns shares of and recommends Facebook, Match Group, Shopify, Shopify, Tencent Holdings, and Twitter. The Motley Fool recommends BANK OF NOVA SCOTIA, BROOKFIELD INFRA PARTNERS LP UNITS, Brookfield Infrastructure Partners, FORTIS INC, ROGERS COMMUNICATIONS INC. CL B NV, and TELUS CORPORATION.