The equity markets remain the best option for investors to build long-term wealth and benefit from the power of compounding. Most broader stock market indices have generated inflation-beating returns over time, despite multiple bear markets and periods of economic volatility.
The ongoing drawdown in stocks across sectors indicates the time is ripe to invest in quality companies and benefit from a rebound when market sentiment improves.
Here are two TSX stocks that have the potential to deliver outsized returns and help increase your equity portfolio to $1 million in 20 years.
Brookfield Renewable Partners
The clean energy sector is expected to attract trillions of dollars in investments in the next two decades, making market leaders such as Brookfield Renewable Partners (TSX:BEP.UN) — a top stock to buy right now.
Down 33% from all-time highs, Brookfield Renewable Partners also offers you a tasty dividend yield of 4.4% making it attractive for income and value investors.
Despite a sluggish economic environment crippled by rising interest rates and elevated inflation levels, Brookfield Renewable has increased funds from operations, or FFO, by 13% year over year in the first quarter (Q1) of 2023. Moreover, the company forecasts to deploy US$8 billion in new investments in 2023, which should drive future cash flows, earnings, and dividends higher.
Brookfield Renewable Partners has successfully recycled capital over the years via the sale of legacy assets and reinvesting proceeds to expand its base of cash-generating assets. It has already identified another US$4 billion in asset sales, resulting in net proceeds of US$1.5 billion for the company.
A major player in the hydroelectric space, Brookfield Renewable Partners also has significant exposure to wind, solar, and other global energy distribution assets, making it a pure-play clean energy bet.
Due to its widening portfolio, it is optimistic about increasing shareholder distribution between 5% and 9% annually. After adjusting for dividends, BEP stock is positioned to return 20% to shareholders, given consensus price target estimates.
Definity Financial stock
One of Canada’s leading P&C (property and casualty) insurance companies, Definity Financial (TSX:DFY), is valued at a market cap of $4 billion. It offers a broad range of P&C insurance solutions, from pets to complex commercial operations, providing investors exposure to a company with both scale and diversification.
Definity Financial is the sixth-largest P&C insurance carrier in the country. Its subsidiary, Sonnet Insurance, has the largest fully digital direct-to-consumer insurance business. Between 2019 and 2022, Definity Financial increased gross written premiums by 13% annually. In Q1, its GWP was up 11.4% year over year, showcasing the resiliency of the insurance sector.
Definity Financial is well poised for expansion across several commercial insurance segments that include small-business, mid-market, and specialty.
The company ended Q1 with a financial capacity of $800 million, which can be used to fund the growth of its strategic initiatives.
DLY stock also offers shareholders a dividend yield of 1.5%. These payouts have increased by 10% annually in the past year. Priced at 16 times forward earnings, DLY stock is trading at a discount of 20% to consensus price target estimates.
