Let’s be clear: holding only one stock is generally a bad idea. Diversification is key to reducing risk. Investment experts usually recommend holding a portfolio of at least 20 stocks with minimal correlation to one another. This way, if one stock underperforms, the others may help absorb the losses.
However, in the hypothetical scenario where I could only choose one stock to buy and hold forever, my pick would be the National Bank of Canada (TSX:NA). It’s a stock that has consistently outperformed its peers in the Canadian banking sector, and there are several reasons why it would be my top choice.
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National Bank of Canada: A top performer in the sector
When it comes to the big banks in Canada, some investors may dismiss National Bank. It is the smallest of the “Big Six” Canadian banks, but its performance has been anything but small. Over the last decade, National Bank of Canada has consistently outperformed the sector, including over the past year, three years, and five years.
A key reason for this success is the bank’s strong management and focus on the Canadian market. By keeping its business primarily within Canada, National Bank has been able to achieve solid and reliable returns. This focus on the home turf has paid off handsomely, both in stability and profitability.
Stellar returns and dividend growth
National Bank’s impressive growth isn’t just theoretical – it’s tangible. Over the past year alone, the stock has soared by 49%, a stellar performance in any market, especially in the banking sector. Much of this growth can be attributed to its strategic acquisition of Canadian Western Bank, a move that promises significant synergies and accelerated growth.
Looking at the longer term, the numbers are even more impressive. Over the last decade, National Bank delivered annualized returns of over 13%, turning an initial investment of $10,000 into roughly $34,189. If you had reinvested dividends, those returns would have been even better – 15.3% annually, bringing your $10,000 to approximately $41,660. Dividend reinvestment has the potential to amplify returns, especially when the stock is a consistent performer like National Bank.
In fact, this top Canadian bank stock has a solid track record of increasing its dividend, with a compound annual growth rate of 8.9% over the past 10 fiscal years. During periods of economic uncertainty, the bank has kept its dividend steady, showing resilience even in tough times.
Risks and valuation concerns
Like all investments, there are risks involved. One of the primary concerns for National Bank is the integration of Canadian Western Bank, which could bring some short-term challenges. There’s also the matter of valuation – at $140.76 per share at writing, the stock is currently trading at 13.5 times earnings, the highest multiple in the past two decades. A market correction or negative news could cause the stock to pull back.
That said, National Bank’s strong earnings, sustainable dividend, and growth prospects make it a solid long-term pick for anyone looking for a stock to buy and hold.
The Foolish investor takeaway
If I were to invest in only one stock for the long haul, National Bank of Canada would be at the top of my list. It offers impressive returns, a reliable dividend, and a solid management team with a track record of success. While there are always risks involved, National Bank’s resilience and growth potential make it a good investment idea, particularly on meaningful market pullbacks.
