Are you new to Canadian stock market investing and looking for a place to start in 2023? If you can afford to take a long-term approach (five years or more), here is a simple five-stock portfolio that could help get you started.
Top dividend stocks
New investors tend to find dividend stocks a comfort, especially when markets are volatile. At the very least you get a tangible cash dividend return, even if the stock price declines. A great place to start is Canadian bank and utility stocks.
One of Canada’s largest banks is Toronto-Dominion Bank (TSX:TD). It has a leading retail banking franchise across Canada and the eastern United States. TD has compounded returns at a nearly 10% annual rate for the past decade.
While banks can be economically sensitive, TD has a strong balance sheet and a nearly market leading capital ratio. Last year, it announced two substantial acquisitions in the United States. These could start to pay off in solid earnings growth in the next few years.
In the meantime, TD trades with 4.4% dividend yield. Likewise, its valuation is reasonable with a price-to-earnings (P/E) ratio of 9.5. For a safe long-term hold, TD is a great place to start.
If you value dividend reliability, Fortis (TSX:FTS) is a Canadian utility stock to own. In fact, Fortis has increased its dividend annually for 49 years straight! Not many other Canadian stocks have such an impressive track record.
Fortis operates several regulated transmission and distribution utilities across North America. These tend to capture very consistent earnings that are backed by regulated contracts. Fortis has a solid balance sheet with most of its debt being fixed, long dated, and staggered.
This Canadian stock pays a 4.17% dividend yield. It has a $22.3 billion capital plan that should help grow the business by around 6% a year, and dividend growth will likely follow that at 4-6% a year.
Top Canadian value stock
If you want a cheap growth stock, Brookfield Corporation (TSX:BN) is an intriguing stock to hold. It owns stakes in a wide array of investment franchises in renewable power, infrastructure, real estate, private equity, specialized debt, insurance, and asset management.
It has compounded annual returns by around 15% for the past decade. Today, its business is larger and more diversified than ever, yet it trades at a large discount to the sum of its parts.
Its management team own a large stake in the business, so they are highly incentivized to bridge this gap. Be patient with this stock and shareholders could be amply rewarded.
Given the stability in the dividend stocks above, it is wise to have some Canadian stocks with a little bit more growth as well. Two that look well positioned for the long term are Aritzia (TSX:ATZ) and BRP (TSX:DOO).
Aritzia has become a premium clothing retailer in Canada. It is only in the early innings of its growth journey in the United States. The company has a founder-led chairman with a high insider stake, a lot of cash on the balance sheet, and a prudent growth strategy. While it is not the cheapest stock, it has a large foreseeable growth trajectory if it can keep executing smartly.
BRP is perhaps a bit more cyclical but cheap in comparison. Despite being a leading manufacturer of innovative recreational vehicles, it only trades for 11 times earnings. It has grown revenues and earnings per share by compounded annual rates of 15% and 19%, respectively.
The company has been aggressively buying back stock, and that always favours long-term stockholders. Take a long approach, and this stock should reward.