Calling any stock safe is a bit of a paradox. In the near-term, stocks are volatile and prices can fluctuate rapidly. Many people look at investing in stocks like they do playing at the casino. Buy low and hope that the stock swings up for a quick profit. This can be invigorating and fun. However, it certainly isn’t safe, and it isn’t investing.
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Think of stocks like private businesses
A stock is a stake in a real business. An investor buys that stake in a business to actually see the business grow and succeed. While the stock market fluctuates in the near-term, a good business creates value over years and decades.
When investing, one of the safest things you can do is think of your stocks like private businesses. Are your stocks/businesses growing, profitable, and creating value?
Then forget about the near-term stock fluctuations. If you hold quality businesses, the value will be recognized over time (and sometimes it takes a lot of it).
If you are looking for some quality, safe stocks to hold for the long-term, here are three to look at today.
A quality dividend stock
Fortis (TSX: FTS) has increased its dividend for 50 consecutive years. There are only a few Canadian stocks that can actually claim that achievement.
Fortis operates 10 transmission and distribution utilities across North America. Consider that, 99% of revenues are regulated, so it has a relatively clear sightline for its annual revenues and earnings.
Fortis is only growing by about 5% a year. However, it is growing in a very prudent manner. It has a capital plan focused on low-risk projects that will meet its return thresholds.
The company has a good balance sheet, a strong credit rating, and long-dated debt with no major near-term maturities. Fortis yields 4.2% and it continues to target 4–6% annual dividend growth for the coming five years.
A sleep-well-at-night industrial stock
Canadian National Railway (TSX: CNR) has delivered low teens total annual returns for shareholders over the past decade. If you look at its chart, it has delivered very steady returns over the years.
Canadian National has a huge network that spans across Canada and the U.S. In many parts, it operates a monopoly for moving large, heavy freight. It has a great business moat and it has persistently strong pricing power over time.
The economy has weakened in 2023. That along with several tough weather events and port strikes has led to lower than usual volumes and earnings this year. The stock is down 4%, which may create a good buying opportunity.
CN only pays a small 2% dividend. However, it has an excellent balance sheet and should be primed for significant share buybacks and strong dividend growth in the coming years.
A highly profitable software stock
One safe stock that might not be on your radar is Descartes Systems (TSX: DSG). It operates a crucial logistics network that is complimented by an important mix of planning, routing, and documentation software services.
Given its solutions are essential to its customers, it earns a high level of recurring revenues. Its business earns~20% profit margins. It generates around $45 million of cash per quarter.
This has translated into a very robust balance sheet with $227 million of net cash. The company has ample opportunities to re-invest the cash into acquisition opportunities. This stock is not cheap at all (especially after its recent run). However, if it happens to dip, it is a great safe stock to hold for the long run.
