What could be better than a stock that you could simply buy and comfortably hold forever? If you could find such a stock, then you’d eliminate the need to do follow-up research, time the markets, and trade in and out of positions. Now, such a simple approach is actually quite do-able with index funds, which require little research and no market timing whatsoever. However, with individual stocks, the need for heavy research – both initial and ongoing – is unavoidable.
That doesn’t mean that some stocks aren’t better suited to long holding periods than others, though. To the contrary, some are. Sectors like utilities, railroads and Canadian banks tend to make great long-term holds – I stress ‘Canadian banks’ here because banking is known for instability in some other countries. On the TSX, the aforementioned sectors are among the best long-term performers. With that in mind, here are three Canadian stocks that may just be worth buying and holding forever.
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Canadian Utilities
Canadian Utilities (TSX:CU) is (you guessed it) a Canadian utility company with a long-term track record of stability and high returns. The company has raised its dividend for 52 consecutive years, making it a dividend King. Stocks with such long dividend track records have a tendency to keep up their strong performance over the long term. For example, the S&P Dividend Aristocrats Index has outperformed the S&P 500 by a slight margin over the last 30 years.
What gives Canadian Utilities its impressive dividend track record?
First of all, it’s a regulated utility. That provides a certain amount of stability right out of the gate. Regulated utilities tend to have stable revenue because they supply an essential service and face little competition. This doesn’t mean they always have stable profit, but the revenue stability gives them a fighting chance at least.
Second, Canadian Utilities is quite profitable, with a 68% gross profit margin, a 16.4% net income margin, and a 10% return on equity (ROE).
Third and finally, CU usually keeps its dividend payout ratio (percentage of profit paid out as dividends) within reason. The failure to do this is one source of problems at utility companies, and CU has avoided the temptation.
Alimentation Couche-Tard
Next we have Alimentation Couche-Tard (TSX:ATD). Alimentation Couche-Tard is a company that, until this year, had a nearly uninterrupted track record of compounding. The company’s stock rose 2,500% between the start of 2010 and the start of this year. For the most part, the company’s actual performance backed up the stock price appreciation. For example, over the last 10 years of the 14-year period just mentioned, ATD compounded its earnings at 14.4% per year.
This year, ATD’s compounding track record hit a minor interruption. The company’s stock first started falling when it put out an earnings release that showed a decline in fuel sales due to low oil prices. Then, the company made a questionable offer to buy 7/11 for tens of billions of dollars. The 7/11 deal did look iffy; however, it now looks likely that a Japanese company will buy 7/11 from its current Japanese owner. ATD’s stock started rising when that news came out; as long as the deal is thwarted, then ATD stock should continue performing well.
CN Railway
The Canadian National Railway (TSX:CNR) is a Canadian railroad company and a pillar of the North American economy. It ships $250 billion worth of goods all over North America each and every year. The company has an excellent competitive position, with only one true competitor. As a result of its relative lack of competition, CN Railway is very profitable, with a 32% profit margin, a 15% free cash flow margin, and a 27.5% return on equity. It is a very important company whose shares are not too expensive. It should continue doing well long term.
