Are you looking for Tax-Free Savings Account (TFSA) stocks to buy and hold forever?
In general, they’re not the easiest things to find. Broad-market index funds are usually thought of as being worthy of indefinite holding periods because they have so much diversification that the risk in them is reduced significantly. With individual stocks, it is much harder to find something that you’ll never have to sell. Truth be told, if you’re holding individual stocks, you’ll always need to follow the news about them to make sure that the company still is what it was when you bought.
Nevertheless, there are some stocks that have characteristics that make it at least plausible that they’ll be worth holding forever. Many regulated utilities, for example, have no real competitors, making them fairly difficult for management to ruin. In this article, I will explore two Canadian stocks that have characteristics that indicate they might be worth buying and holding forever.
CN Railway
Canadian National Railway (TSX:CNR) is Canada’s largest railroad company. It transports $250 billion worth of goods each year all over North America.
Why has CN Railway been such a consistent long-term performer?
There are several reasons, many of which still apply today:
- The company has only one major competitor in Canada.
- It’s one of only two North American railroads that touch three North American coasts.
- Rail is by far the most economical way to ship large amounts of goods (e.g., grain, timber, cars) by land, meaning that rail shipping will likely always have a niche.
These advantages provide good reason for thinking that CN Railway will stand the test the time.
CN Railway does face risk factors too. It’s very cyclical, meaning its performance declines during recessions, and its crude-by-rail business could be disrupted by new pipeline developments. On the whole, though, CNR looks likely to remain a vital part of North America’s transportation infrastructure. That doesn’t mean its stock will rise, but it gives it a fighting chance.
Fortis
Fortis (TSX:FTS) is one of Canada’s best-performing utility companies. Its stock has risen at a steady clip over the years while paying considerable dividends. The company has increased its dividend for 51 consecutive years, making it a Dividend King.
One of the reasons why Fortis has good long-term potential is because of a factor alluded to in the introduction of this article: it’s a utility. Regulated utilities have an edge in revenue stability due to the fact that they are often de-facto monopolies over their service areas. The flip side of this “edge” is that they often need government permission to raise power rates, so stable and rising profit is no guarantee. But they do keep the cash coming in.
That’s not to say that all utilities are great buys. To the contrary, some Canadian utilities have done rather poorly. Fortis has done better than the TSX utilities sector as a whole due to its emphasis on sensible capital expenditures, expansion, and keeping its payout ratio below 100%. It looks like a company with a bright future.
Foolish takeaway
There aren’t that many companies that stand the test of time. However, some do. Companies with durable competitive advantages tend to stick around. The companies named in this article demonstrate that fact brilliantly. Either one would be a worthwhile addition to a diversified TFSA portfolio.
