Blue-chip stocks are backed by companies with well-established businesses, strong fundamentals, and a solid track record of delivering profitable growth. As these companies have dependable earnings, they enhance their shareholders’ returns through share buybacks and regular dividend payouts.
Thus, every Canadian must own a few blue-chip stocks, as it will add stability to your portfolio and help you earn reliable returns over time. While the TSX has several blue-chip stocks, the following three are my favourites.
Enbridge
With its high-quality energy infrastructure assets and a market cap of around $98 billion, Enbridge (TSX: ENB) is a no-brainer. The company transports and exports oil and gas. Also, it owns a regulated natural gas utility business and has a growing portfolio of renewable energy facilities.
Its highly diversified business model, backed by conventional and renewable assets, long-term contracts, power-purchase agreements, and regulated cost-of-service tolling frameworks, enables the company to deliver solid earnings and cash flows across economic and commodity cycles.
It’s worth highlighting here that Enbridge was among the few energy companies that continued to pay and increase their dividends, even during the pandemic when most companies operating this space suspended or lowered their payouts. This shows the resilience of its business model and cash flows. It has been paying a dividend for 68 years. Impressively, its dividend has grown at an average annualized growth rate of 10% for about 28 years.
Overall, its solid business, ability to generate sufficient self-funding capacity, and investments in low capital intensity augur well for future growth. Further, investors can earn a high yield of 7.4% (based on its closing price of $48.29 on August 2) by investing in it near the current levels.
Bank of Montreal
From energy, let’s turn toward Canadian banks. With its longest dividend payment history and ability to consistently grow its earnings, Bank of Montreal (TSX: BMO) remains a top blue-chip stock. This financial services giant is the eighth-largest bank by assets in North America.
Thanks to its highly diversified businesses, the bank consistently delivers resilient and robust earnings, which enable it to create long-term value for its shareholders. Thanks to its solid earnings base, Bank of Montreal has paid a dividend for 194 years. Moreover, its dividend increased at a CAGR (compound annual growth rate) of 5% in the past 15 years.
Looking ahead, its diversified revenues, strong and stable balance sheet, high-quality assets, and improving efficiency position it well to deliver solid returns. Moreover, its ability to generate strong earnings and a sustainable payout ratio indicates that the bank could continue to enhance its shareholders’ value through higher dividend payments.
Loblaw
Speaking of blue-chip stocks, one could consider adding the shares of Canada’s largest food and pharmacy retailer Loblaw (TSX: L). Despite owning and operating a low-risk and defensive business, Loblaw stock has appreciated by about 133% in five years, delivering a CAGR of over 18%.
Thanks to its discount stores, inflation-fighting price freeze, and wide product offerings, Loblaw is well positioned to perform well in all market conditions and deliver reliable growth. Further, its focus on optimizing its retail network and growing the penetration of private-label food products will help drive traffic.
As the company continues to grow steadily, it returns cash to its shareholders through share buybacks and dividend payments. Overall, Loblaw is a solid long-term bet to generate attractive returns without worrying much.
