Opinion: 2 Stocks Every Canadian Should Own

Here’s why investing in blue-chip dividend stocks such as Dollarama should help you beat the TSX index over time.

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Canadians looking to invest in quality growth stocks can consider buying shares of blue-chip companies such as Dollarama (TSX:DOL) and Brookfield Asset Management (TSX:BAM). Both these TSX stocks are positioned to outpace the broader markets in the upcoming decade, driven by a widening earnings base and strong revenue growth. Let’s dive deeper.

The bull case for Dollarama stock

Valued at $29.6 billion by market cap, Dollarama went public in October 2009. Since its IPO (initial public offering), the TSX stock has returned a whopping 3,140% to shareholders, easily outpacing the broader markets. Dollarama is a discount retailer that generates cash flows across business cycles.

In the fiscal third quarter (Q3) of 2024 (ended in October), Dollarama increased sales by 14.6% year over year to $1.48 billion. Despite an uncertain macro environment, Dollarama increased comparable store sales by 11% while adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose by 24% to $478.8 million.

Dollarama experienced robust consumer demand due to its broad range of affordable products and strong execution, driving double-digit same-store sales for the sixth consecutive quarter. Further, Dollarama’s earnings growth was much higher, at 31% or $0.92 per share.

Dollarama opened 16 net new stores in Q3 ending the quarter with 1,541 stores, up from 1,462 stores in the year-ago period.

Despite its market-thumping gains, Dollarama stock trades at 31 times forward earnings. Comparatively, adjusted earnings per share are forecast to right by 17% in the next five years.

The bull case for Brookfield Asset Management stock

A financial giant, Brookfield Asset Management is poised to deliver inflation-beating returns to shareholders. BAM is an asset manager which raised US$93 billion of capital in Q4. If we adjust for the closing of the AEL (American Equity Investment Life) insurance account, its total capital raise stood at US$143 billion.

With interest rates stabilizing, BAM is armed with significant dry powder that will be deployed across multiple transactions in the next 12 months, given that valuations for real assets remain attractive across segments. Brookfield Asset Management already deployed US$15 billion of capital into investments across large-scale, high-quality businesses and assets in Q4.

Its distributable earnings in Q4 stood at US$586 million, while this figure for 2023 is much higher at US$2.2 billion. BAM stated its fee-related earnings account for 100% of distributable earnings.

The company’s fee-bearing capital stood at US$457 billion at the end of Q4, an increase of 9% or US$39 billion year over year. Once the AEL insurance account is closed, fee-bearing capital will surge over US$500 billion.

Brookfield’s solid results in Q4 allowed it to raise quarterly dividends by 19% to US$0.38 per share, translating to a forward yield of 3.7%. BAM’s expanding fee-based earnings should help it generate stable cash flows, resulting in consistent dividend hikes going forward.

Despite its massive size, analysts expect BAM to increase sales from US$4.4 billion in 2023 to US$5 billion in 2024 and US$5.9 billion in 2025. Its adjusted earnings are forecast to rise from US$1.37 per share in 2023 to US$1.54 per share in 2024 and US$1.78 per share in 2025.

Priced at 26.5 times forward earnings, BAM stock is cheap, given earnings per share are forecast to expand by 18% annually in the next five years.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Asset Management. The Motley Fool has a disclosure policy.

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