The higher the rate of return you can get on your long-term investments, the faster you can build your wealth on regular savings. Stocks have historically been a top-performing asset class. So, investors should consider stocks for a good portion of their diversified portfolios, which could also include real estate, bonds, cash, etc.
Here are some attractive-looking stocks for long-term investing that you can consider.
Bank of Nova Scotia
Bank of Nova Scotia (TSX:BNS) is set to report its earnings soon along with its big Canadian bank peers. The stock has been the weakest performer of the Big Six Canadian bank stocks by falling about 24% over the last 12 months. At $62.03 per share, it offers the biggest dividend yield of the group — 6.8%. Its dividend continues to be covered by its net income with leftovers. So, investors don’t need to worry about a dividend cut.
In the past 10 fiscal years, the bank increased its adjusted earnings per share at a compound annual growth rate (CAGR) of 5.88%. Currently, it trades at a discount of about 24% from its long-term normal price-to-earnings ratio of approximately 11 times.
To be more conservative, assuming no valuation expansion and an earnings growth rate of 5%, the stock could deliver about 12% per year over the next five years. With valuation expansion, the total returns could bump up to roughly 17%. Let’s take the midpoint of that and estimate total returns of 14%.
Brookfield Infrastructure Partners
Brookfield Infrastructure Partners (TSX:BIP.UN) is a diversified utility stock that has outperformed the sector and the market in the long run. It maintains a global, quality portfolio of transport, midstream, utility, and data infrastructure assets. Despite the fact that the stock has corrected about 22% in the last 12 months, its 10-year annualized return is about 16.5%, which is more than double the Canadian stock market benchmark.
BIP.UN and XIU Total Return Level data by YCharts
From 2012 to 2022, Brookfield Infrastructure increased its funds from operations (FFO) per unit at a compound annual growth rate (CAGR) of about 11%, which translated to a cash distribution-growth rate of approximately 9%. The utility continues to generate quality cash flows. About 90% of its FFO is contracted or regulated, and about 80% is indexed to inflation.
Going forward, the utility targets to grow its FFO per unit at a CAGR of north of 10%, which can support cash distribution growth of 5-9% per year. Let’s be more conservative and project an FFO growth rate of 7%. The stock currently yields 4.8%. Assuming no valuation expansion, the stock could deliver about 12% per year over the next five years.
At $42.85 per unit, analysts actually believe the stock is discounted by about 27%. With valuation expansion, the total returns could bump up to north of 18%. Let’s take the midpoint of that and estimate total returns of 15%.
Bottom line
By investing a total of $10,000 across the two stocks evenly and getting an average return at a CAGR of 14.5%, investors would arrive at about $19,680 in five years. If this rate of return materializes, the Rule of 72 approximates that it would take investors about five years to double their money. Of course, in the holding period, investors can expect the stocks to be volatile. And don’t expect smooth earnings or FFO growth in the businesses.
