The Canada Revenue Agency (CRA) has credited the goods and service tax (GST) refund of up to $114 into your account on July 5. If you haven’t planned anything for this money, here is your chance to begin investing in the stock market. With zero-commission trading apps, stock trading has become as easy as opening a social media page. While opening an account is not rocket science, choosing a stock is?
The way Spotify has its readymade playlist for every mood, Motley Fool Canada has a different list for every goal and risk profile.
Three stocks to a healthy start in stock market investing
I have noticed this a lot in new traders. They invest with a lot of zeal and buy stocks that are rallying. Then when the stock corrects and their portfolio shows losses, they panic-sell and exit the market saying stocks are not their cup of tea. Here I have picked three stocks that will relieve you of this anxiety by balancing risk and reward.
Secure your returns with dividend stocks
If it is the fear of losing that has kept you from investing in stocks, then you should begin with Dividend Aristocrats. The right way to find good dividend stocks is to look at their history. While I agree that past performance does not guarantee future returns, dividend stocks are not for capital appreciation.
Always see how the company earns cash and will you be using their products in crisis. Two stocks that meet these criteria are SmartCentres REIT (TSX:SRU.UN) and Enbridge (TSX:ENB)(NYSE:ENB).
SmartCentres REIT
SmartCentres REIT is a landlord to the many Walmarts in the prime locations of Canada. Even if there is an apocalypse, a Walmart will be open and probably act as a shelter home. SmartCentres earns 25% of its rent from Walmart. It is both good and bad.
Good because a Walmart store attracts many other merchants and helps SmartCentres fill up stores fast. Bad because it is too dependent on Walmart. If the retail giant decides to go somewhere else, SmartCentres will see a significant plunge in rent and might even cut dividends. The REIT is securing the perimeter by developing multi-use properties, retail, office, and residential.
Enbridge
Enbridge is an essential company that has the largest pipeline infrastructure across North America and is building more. Pipelines transmit liquid and gaseous things that can flow from one place to another. Enbridge uses pipelines to transmit oil and natural gas in return for toll money.
The company has long-term contracts with utilities that ensure pipelines are busy. It charges the toll money based on volume and increases the rate at regular intervals.
It is this toll money that Enbridge gives as dividends and also increases the dividends by adding new pipelines. For the last 26 years, it has successfully increased dividends at a compounded annual growth rate of 10%.
You can buy stocks of SmartCentres and Enbridge for less than $41/share and lock in a dividend yield of 6.2% and 6.83%, respectively.
Inflation hedge stocks
While dividends ensure you get regular income from investment, oil stocks provide a hedge against inflation. At present, inflation risk is haunting the economy as the pandemic effect eases. Inflation means rising prices. Gold is a popular inflation hedge, but only when held for 10 to 15 years. Oil is a short-term inflation hedge.
Tensions between two Organization of the Petroleum Exporting Countries (OPEC) has stalled plans to increase oil output. With demand picking up, this delay in increasing oil supply could shoot oil prices to US$80 or US$100/barrel, according to experts. But they also warned otherwise. Whether oil prices rise or fall, Suncor Energy (TSX:SU)(NYSE:SU) will benefit both ways due to its integrated exposure.
Suncor is in the business of exploration, refining, and distribution of oil. When oil price rises, it profits from exploration and refining. When oil price falls, it benefits from distribution as oil demand rises. The next 12 months are crucial for Suncor as it could see a 37% upside in its journey to the pre-pandemic price of $40.
