Canadian Blue-Chip Stocks: The Best of the Best for September 2023

Investors are likely to build solid wealth for the long haul by investing in blue chip stocks trading at good valuations.

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These Canadian blue chip stocks have delivered market-beating long-term returns. From current levels, they could continue to outperform. They are some of the best-of-the-best stocks to buy this September.

Brookfield Infrastructure Partners

Rising interest rates since 2022 have dragged down stocks of businesses with meaningful debt on their balance sheets, including Brookfield Infrastructure Partners L.P. (TSX:BIP.UN). The meaningful correction of 20% from the 2022 peak is a good buy-the-dip opportunity in the blue chip stock.

The utility has demonstrated long-term outperformance versus the market and utilities sector. In the last 10 years, BIP.UN delivered annualized returns of about 16.5% versus the market and sector returns of 8.5% and 7.8%, respectively. The utility stock’s five-year returns also outperformed, as shown in the graph below.

XUT Total Return Level Chart

BIP.UN, XUT, and XIU Total Return Level data by YCharts

The utility has globally diversified operations in long-life utility, transport, midstream, and data infrastructure. They generate durable cash flows that are approximately 90% contracted or regulated. As well, 80% of its cash flows are indexed to inflation.

At $42.97 per unit at writing, analysts believe the top utility stock trades at a discount of about 29%. It pays a nice cash distribution yield of close to 4.8%. And it continues to forecast healthy cash distribution growth of 5-9% per year that’s supported by estimated funds from operations per unit growth of potentially north of 10% per year. Based on these assumptions, the dividend stock could deliver annualized returns of north of 13% per year over the next five years.

Constellation Software

If you prefer a blue chip stock with better price momentum and technical strength, you can investigate Constellation Software (TSX:CSU). The software company acquirer still appears to be reasonably valued despite it delivering returns of 37% over the past 12 months.

There seems to be no competition for the top tech stock that almost tripled investors’ money in the last five years and almost 18 times in the last decade. In other words, $10,000 invested five years ago would be worth about $29,310 today, while the same amount invested 10 years ago would be worth an incredible $177,750!

Constellation Software is a large-cap growth stock that’s skillful in making strategic acquisitions. In the last decade, its return on invested capital has been at least 14% every year, while its five-year return on invested capital is about 25%. This has supported a strong return on equity of at least 29% per year in the last decade and a whopping five-year return on equity of 45%.

At about $2775 per share at writing, analysts believe the quality tech stock is discounted by about 14%. That said, investors should note that its multiple is much higher than 10 years ago. At the recent quotation, it trades at about 37 earnings versus a multiple of 18 times a decade ago. That is, although the business is likely to continue to execute well, investors should expect more down-to-earth returns over the next decade – perhaps total returns of more or less 12% per year.

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 Kay Ng has positions in Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners and Constellation Software. The Motley Fool has a disclosure policy.

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