If you are new to investing in stocks, it is wise to diversify your holdings between a mix of sectors, industries, and even geographies. As you gain experience, you will know which stock segments and strategies best fit your circumstance and disposition.
If you are looking for some ideas for a starter portfolio, here are four to begin with today.
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A dividend growth stock as a portfolio foundation
It never hurts to have some exposure to dividend stocks. When the market is volatile, at least you collect an income return. If you can get some growth as well, it is even better. One stock that is ideal as a portfolio foundation is Canadian National Railway (TSX: CNR).
With a 2% dividend yield, it may not have a high yield. However, when it comes to dividend growth it has been spectacular. CNR has grown its dividend per share by a 13%-plus compounded annual rate for a decade.
Over long periods, CNR has proved a solid business. It has a diverse network, a strong competitive moat, and an excellent balance sheet. If the transnational railway can sustain high single-digit earnings per share growth, share buybacks and strong dividend growth are likely ahead.
A compounder in the making
If you want a steady grower that can provide geographic diversification, you might want to look at Topicus.com (TSXV: TOI). It was spun out from top-performing TSX stock Constellation Software, a couple of years ago.
Topicus is replicating Constellation’s software acquisition and consolidation strategy in Europe. The company also has an excellent development platform that is fuelling strong organic growth.
If Topicus can achieve even half the results as Constellation, its stock will be a resounding success. It has a great balance sheet, a smart management team, and a large market to consolidate. While it isn’t the cheapest stock, it has recently pulled back. If you can look out 5 to 10 years, now is a great time to add it.
An industrial with a great growth record
TFI International (TSX: TFII) does not operate an exciting business. It is a freight and logistics carrier across Canada and the United States. The company has been an excellent capital allocator.
It has acquired over 90 shipping and transport providers over the past 10 years. This has helped propel 23% compounded annual returns over the decade.
TFI stock has stalled due to challenging trends in the North America freight industry. These appear temporary. Likewise, there are plenty of self-help initiatives TFI is taking to improve service, reduce costs, and streamline its network.
In the meantime, the company is generating strong free cash flow. TFII stock has a great record of buying back stock and increasing its dividend. It should continue this into the future.
The small cap stock with rocket potential
Within a diversified portfolio, every investor should own a couple of stocks that may be higher risk, but also have skyrocket potential. Small-cap stocks are a great place to look for these. One stock that looks promising is Propel Holdings (TSX: PRL).
It provides small-sized consumer loans to the non-prime credit segment. While this is a riskier segment, Propel has a proprietary artificial intelligent underwriting platform. Not only can it underwrite quickly, but its model is highly predictive of a loan’s success.
Propel has been growing earnings per share by 30%-plus a year. It has several levers to continue this strong growth. PRL stock trades with a price-to-earnings ratio of only 13 and it has a yield of 2%.
