Are You Starting a Stock Portfolio? If Yes, Keep It Safe and Simple

First-time investors should keep their stock portfolios safe and simple by holding time-tested, income-producing assets.

| More on:
stock data

Image source: Getty Images

It’s never too late to start investing in stocks and build a portfolio. Canada’s primary stock exchange is underperforming thus far in 2022, but it doesn’t mean we are in a bear market. The TSX must fall 20% to make it official. As of mid-August 2022, the year-to-date loss is only 4.9%.

The suggestion to first-time investors is to keep it safe and simple. Warren Buffett, the GOAT (greatest of all time) of investing, said, “Never invest in a business you cannot understand.” If you follow his advice, you’re on the right track if the stocks in your starter kit are the Royal Bank of Canada (TSX:RY)(NYSE:RY) and BCE (TSX:BCE)(NYSE:BCE).

More Buffett advice is, “Don’t watch the market closely.” With RBC and BCE, you don’t have to because the former is Canada’s largest bank and the latter is the most dominant player in the telco industry. The Big Six Bank and 5G stock are not only for long-term investors but also beginners.

Both companies have the financial muscle to weather market storms and economic downturns. They are excellent passive income providers paying attractive dividends. Furthermore, their dividend track records are more than 100 years old.

Long-term hold

The RBC economics team warns that stronger-than-expected inflation continues to force central banks into aggressive action. The Bank of Canada will announce its next rate decision on September 7, 2022. While global price pressures appear to be easing and inflation is close to peaking, RBC analysts say it won’t slow significantly to the Fed’s target range without a weaker economy.

Earning passive income is important as ever because inflation erodes purchasing power. RBC is trading at $128.45 per share (-1.71% year to date) and pays a 3.99% dividend yield.

The total return of 49,361%, or 13.3% compound annual growth rate (CAGR), in 49.7 years is enough justification to invest in this Big Bank stock. In fiscal 2021, RBC’s net income of $16 billion was 40.3% and 24.7% higher than in fiscal years 2020 and 2019, respectively.

Dividend machine

BCE needs no introduction as everyone knows that its telecom products and services are essential to people and businesses. The $59.6 billion company is a cash cow and dividend machine. The company’s average EBITDA growth rate has increased to 5.3% over the past 12 months, versus a 3-year EBITDA growth rate of 2.1%, as it large investments in 5G and fiber-to-the-home begin to payoff with high mobile phone and internet subscriber growth.

If you take a position today, the share price is $64.85 (+1.3% year to date), while the dividend yield is a hefty 5.71%. Like RBC, BCE is for keeps. The telco stock’s total return in 46.7 years is an impressive 77,674 (15.3% CAGR).

Mirko Bibic, President and CEO of BCE and Bell Canada, said, “The Bell team continues to deliver for all the stakeholders we serve.” While net earnings in Q2 2022 declined 10.9% versus Q2 2021, free cash flow (FCF) increased 7.1% year over year to $1.3 billion.

Reinvest the dividends

The average dividend yield of RBC and BCE is 4.85%. Assuming you allocate $5,000 to each stock, the pair will produce $121.25 in passive income every quarter. That amount isn’t bad for starters. If you don’t collect the dividends and instead reinvest them, the value of your investment should compound considerably over time.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Stocks for Beginners

The sun sets behind a high voltage telecom tower.
Dividend Stocks

Why TSX Utility Stocks Look Appealing Right Now

TSX utility stocks will likely outperform this year given the impending recession and steady rates.

Read more »

tsx today
Stocks for Beginners

TSX Today: What to Watch for in Stocks on Tuesday, May 30

Weakening gold and oil prices could pressure TSX mining and energy stocks at the open today, as investors continue to…

Read more »

Target. Stand out from the crowd
Stocks for Beginners

3 Reasons Why Dollarama Stock Is a Buy in May 2023

Dollarama stock has returned nearly 600% in the last decade, beating the TSX Index by a big margin.

Read more »

Female friends enjoying their dessert together at a mall
Dividend Stocks

How I’d Invest $300 a Month to Target a $3,000 Yearly Passive Income

Stocks can be a good source of passive income. All you need is to regularly invest in dividend stocks and…

Read more »

edit Balloon shaped as a heart
Dividend Stocks

4 Top Stocks With High Dividend Growth to Buy in 2023 and Hold Forever

Are you looking for stocks you can buy and forget, while they keep giving you returns? Then these high dividend…

Read more »

Oil pumps against sunset
Energy Stocks

The Top TSX Energy Stocks to Buy This Summer

Recession fears have disproportionately weighed on TSX energy stocks lately.

Read more »

man is enthralled with a movie in a theater
Stocks for Beginners

Enjoy the Show: There’s a Big Opportunity Coming at Cineplex

There's a big opportunity coming at Cineplex (TSX:CGX). Here's why prospective investors with long-term horizons should consider the entertainment titan.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

5 Canadian Dividend Stocks That Every Investor Should Own

Canadian dividend stocks are known for generous yields and stable returns. Here are five stellar options to start or augment…

Read more »