If I Could Only Own 5 Stocks, Here’s What I’d Buy

Focus on market leaders. Buy quality stocks like Fortis and TD Bank stock for growing dividend income and steady growth.

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In our quest to create a highly diversified portfolio of stocks, there are a couple of common obstacles that we might face. The first is a lack of funds. The second is that we often don’t know the best stocks to buy.

Here are the five stocks I would buy. This list is a diversified set of quality companies from different industries.

BCE: Canada’s telecom giant yielding 6.5%

BCE (TSX:BCE) is Canada’s largest telecom services company, with a market capitalization of $54 billion and a long history of stability. BCE’s leading position in the very defensive telecommunications industry has afforded the company great strength and predictability.

This has given way to consistently strong and growing cash flows and dividends. For example, in the last five years, BCE stock’s dividend has grown at a compound annual growth rate (CAGR) of 5.1%. Similarly, this annual dividend-growth rate has held up in the last 20 years as well.

BCE’s free cash flow generation has been strong and growing, surpassing $3 billion in each of the last five years. This cash flow has gone straight to investors in the form of dividends. BCE has also been investing heavily in its broadband and fibre optic networks, which will support continued growth in the future.

CGI: Canada’s best and brightest tech stock

For exposure to the technology sector, I would definitely buy CGI (TSX:GIB.A) stock. CGI is a $27 billion IT and business consulting services firm. The company has been embarking on a very successful strategy that has seen it grow both organically and via acquisitions. Today, CGI is a global force to be reckoned with in the information technology industry.

Today, this industry remains highly fragmented with strong growth drivers. CGI remains well positioned to continue to capitalize on both. For example, CGI’s backlog recently hit an all-time high of $25 billion. Also, revenue and earnings have been growing at double-digit rates. Finally, more acquisitions seem to be in the cards for CGI, which will further prop up this company’s revenue and earnings growth.

Fortis: Canada’s tried-and-true utility stock

Fortis (TSX:FTS) is one of North America’s biggest and most diversified utility companies, both geographically and by asset mix. It’s also one of the TSX’s most reliable and predictable dividend stocks. It makes my list of five stocks I would buy because of these characteristics.

A core holding like Fortis is essential for any portfolio. Fortis provides safety of capital, a growing and predicable dividend, and long-term value creation — a true core holding. For example, Fortis has a truly enviable and unmatched track record of dividend growth. In fact, this year marked its 49th consecutive year of dividend growth. The latest dividend increase was a 5.6% increase last quarter, and the company expects dividend growth in the range of +4% to +6% until 2027.

Tourmaline for exposure to the booming natural gas market

Natural gas is becoming the fuel of choice globally to start the eventual transition to zero carbon energy. Tourmaline Oil (TSX:TOU) is Canada’s largest natural gas producer. And that’s a good thing, because the North American natural gas market has opened up to the world, and demand is booming.

In Asia, for example, countries are clamouring for access to North American natural gas. It’s cheap, abundant, and much cleaner that the coal that they have typically relied on for their energy. Tourmaline’s five-year history of cash flow growth and dividend increases (213% growth in base dividend plus numerous special dividends) is evidence of a booming North American market. Looking ahead, Tourmaline will increasingly supply LNG terminals, benefitting from global demand and pricing.

TD Bank stock

Toronto-Dominion Bank (TSX:TD) is one of Canada’s leading banks. In fact, it’s one of Canada’s top two banks and North America’s top five banks. The Canadian banking system has been famously profitable and resilient. This has made stocks like TD Bank excellent long-term investments.

Today, TD Bank stock is yielding 4.95%. The stock has been hit recently due to macroeconomic concerns and has fallen below $78. Yet the bank continues to grow and be well positioned for further growth and value creation.

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 Karen Thomas has a position in TD Bank, Tourmaline, CGI, and BCE. The Motley Fool recommends CGI and Fortis. The Motley Fool has a disclosure policy.

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