It’s not all that often that you encounter a stock that you’re so comfortable with you’d hold until you die. Sure, there are a few cases of stocks that have performed so well that investors could have done well holding them for life. But hindsight is 20/20, and it’s not always easy to spot such stocks in advance.
Nevertheless, stocks that perform well for long periods of time share characteristics in common. These include strong competitive positions, long periods of rising dividends, and invulnerability to disruption by new technologies. If you can find stocks with all three qualities, you might just have a “forever hold” on your hands. In this article, I will explore two Canadian stocks and one exchange-traded fund (ETF) that Canadians can probably feel comfortable owning until they die.
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iShares S&P/TSX Capped Composite Index Fund
iShares S&P/TSX Capped Composite Index Fund (TSX:XIC) is a Canadian index ETF consisting of 224 top TSX stocks. It has a very low management fee (0.04%), high liquidity and a reputable fund manager–all qualities that investors look for in index ETFs.
In the world of equities, it’s hard to get much safer than index funds. Arguably, some stocks are safer than the indexes, according to the “risk equals volatility” formula, as they swing in price less than the index. However, index funds reduce one entire source of risk (company-specific risk) to near zero. As a result of this, a person can invest in them profitably without having to have any company-specific knowledge or insights.
XIC is the index fund that best represents the TSX Composite Index, which makes it a good proxy for the Canadian stock market as a whole. It’s definitely a contender for a stock so safe that you can hold it until you die.
Fortis
Fortis (TSX:FTS) is a Canadian utility stock that has raised its dividend for 51 consecutive years. The most recent of those years was this year, meaning that Fortis is a Dividend King.
A long track record of dividend increases is one of the telltale signs of a stock that has long-term potential. The Dividend Aristocrats — a group of stocks with at least 25 years of dividend increases under their belts — have outperformed the S&P 500 over the long term. That’s no mean feat since the S&P 500 is a notoriously tough benchmark to beat.
Fortis has achieved its long dividend track record through a combination of sensible capital allocation, prudent investment, and a long-term focus. The company has always kept its payout ratio comfortably below 100%, which has given it the funds needed to invest in growth without taking on inordinate amounts of debt. As a result, it has outperformed the TSX in the long term.
CN Railway
Canadian National Railway (TSX:CNR) is a Canadian railroad stock with 25 years of dividend increases under its belt. It has only one true competitor and provides an essential service — freight transportation. Rail transportation is the most cost-effective way to ship large amounts of goods by land. So, the amount of competition that CNR faces from substitutes, like trucks, is limited.
CN Railway currently trades at about 20 times earnings. Despite being relatively modestly valued, the company is highly profitable, with a 32% profit margin. Its lack of competition and essential service status mean it’s likely to do well for decades to come. Overall, CN Railway is a stock worth owning.
