The Best Canadian Stocks to Diversify Your Portfolio

Diversification for the sake of diversification may not be a viable strategy, and you have to choose the right stocks to diversify your portfolio.

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Portfolio diversification is important, but simply chasing diversification may not be a viable strategy. You have to choose the right kind of stocks to diversify your portfolio with. It’s also important to understand that there are often significant variations within a sector. For example, marijuana stocks tend to move differently compared to drug manufacturers, even though both are from the same sector (health care).

If you want to diversify your portfolio, there are three (almost) blue-chip stocks you may consider choosing. The reason for using blue chips is that most Canadian investors would be comfortable adding them to their portfolios.

A real estate service company

FirstService (TSX:FSV), while not a one-of-a-kind real estate stock, certainly stands out because of its leadership status in North America. It’s the largest manager of residential communities in North America and currently manages over 87,000 properties, representing millions of individual housing units.

More importantly, that’s just half of its business. The other half is a range of essentially property service companies that offer a variety of services.

But it’s not just different enough for diversification. It’s also a powerful growth stock that is in the process of recovering from a sizable slump and has grown almost 23% in 2023 alone and is still climbing.

It’s also a Dividend Aristocrat that has grown its payouts by 50% between 2019 and 2023. However, the yield is not nearly as compelling as its growth potential. It’s not a great value pick, but its financials are healthy and steadily growing year after year.

A supply chain company

While it’s technically part of the industrial sector, TFI International (TSX:TFII) represents a specific domain within the sector and has no regional competition (at least publicly traded) that matches its scale of operations and presence. It has the largest trucking fleet in Canada and a network of over 90 operating companies.

TFII International is a relatively unique pick and a great way to diversify your portfolio. The stock experienced a remarkable surge during the pandemic and still rides that momentum.

One major driver for this momentum was the surge in e-commerce activity, accelerating the demand for TFI International’s services. However, unlike pure e-commerce companies that experienced a massive correction afterward, TFI International is still going strong.

An agriculture stock

Many Canadian portfolios may hold at least one materials stock, but in most cases, it’s a gold mining stock. Even though many battery metal stocks are gaining traction within the materials sector, Nutrien (TSX:NTR) might be the best contender from a diversification perspective. As one of the largest agricultural companies in the world and the largest producer of potash, Nutrien is a very safe pick.

If you can buy the company now, you will benefit from the modestly high 3.2% yield the company is offering, thanks to the 38.9% discount it’s still trading at. But considering the bullish trend the company is experiencing right now, the discount, and along with it, the dividend yield, may shrink soon.

  • We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if Nutrien made the list!

Foolish takeaway

The three stocks can help you safely diversify your portfolio and add businesses that have strong finances and compelling performance and dividend histories. They also dominate their respective industries (domains) globally or regionally, which makes them resilient against forces that may negatively impact their sectors.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends FirstService and Nutrien. The Motley Fool has a disclosure policy.

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