Here are two of the best Canadian stocks to buy now. They have solid balance sheets and the prospects to provide outsized total returns over the next five years and beyond!
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Brookfield stock
Brookfield Corp. (TSX:BN) is a more complex business than normal. And herein lies the value opportunity. It’s the parent of multiple businesses, including some that are listed on stock exchanges.
Its latest spinoff in December 2022 was 25% of its alternative asset management business. Brookfield continues to own a stake of approximately 75% in the business. Its other businesses include renewable utilities, infrastructure, private equity, credit and insurance, and commercial real estate.
Because Brookfield consists of so many businesses, it makes it difficult (maybe even impossible) to analyze the business or put a valuation on its stock. Brookfield focuses on compounding capital over the long term. It also has “a perpetual capital base of approximately US$125 billion generating US$5 billion of free cash flow annually” that is reinvested into its three core pillars – asset management, insurance solutions, and its operating businesses.
For your reference, Brookfield stock’s five-, 10-, 15-, and 20-year total returns were compound annual growth rates (CAGR) of about 8.9%, 14.2%, 10.3%, and 15.5%, respectively. Notably, in the last 12 months (LTM), the stock is down approximately 34%, which has impacted these returns – particularly over a five-year period.
If you observe Brookfield’s earnings in a graph over 20 years, you’ll notice that they’re cyclical. In other words, it’s probably an excellent buying opportunity when the stock is substantially down like it has been in the LTM. So, over the next five years, the growth stock has a good chance of delivering returns at the top end of its range (around a CAGR of 15%) if the business continues to deliver as it has done according to its long-term track record.
TD stock
Unlike Brookfield stock that requires active investing, particularly choosing to buy and potentially sell opportunistically, Toronto-Dominion Bank (TSX:TD) stock can be a passive investment. To be clear, TD stock offers nice dividend income. Additionally, it’s a dividend that it increases over time. For example, its 15-year dividend growth rate is 8.4%.
In fact, because of the banking shakeup from the bank collapse in Silicon Valley and Credit Suisse, TD stock currently trades at a decent discount with a decent dividend yield. Specifically, at $83.53 per share, the undervalued stock trades at a discount of about 17% from its long-term normal valuation. And it offers an initial dividend yield of 4.6%.
For your reference, TD stock’s 5-, 10-, 15-, and 20-year total returns were a CAGR of about 6.0%’, 10.8%, 9.8%, 12.0%, respectively. In the best case scenario, the top bank stock can deliver a CAGR of approximately 16% over the next five years or so.
Investor takeaway
Both stocks appear to be fabulous buys for the potential to beat market returns over the next five years and beyond. Between the two, TD stock is a lower-risk investment from the perspective that a good portion of its returns comes from its quarterly dividend payments. Investors could then use the dividend income for paying expenses or reinvestment.
