Building Wealth With Stocks: A True North Strategy for Consistent Returns

Build wealth via stock investing by focusing on strong businesses, embracing dividends, buying growth stocks, and diversifying your portfolio.

When it comes to building wealth through stocks, expecting to get rich overnight is unrealistic. Instead, adopting a steady, strategic approach will help you achieve consistent, long-term returns. The “True North Strategy” focuses on sustainable business practices, dividend income, smart growth stock selections, and diversification. Here’s how you can apply it to your investment portfolio.

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Focus on businesses, not just stocks

The first step in building a wealth-generating portfolio is to focus on businesses that show consistent growth across economic cycles. While it’s normal for revenues or earnings to dip occasionally, the key is identifying companies with a long-term upward trajectory. These companies tend to thrive, even in the face of economic challenges, making them ideal for durable returns.

For instance, take Fortis (TSX: FTS). A blue-chip stock with a proven track record, Fortis benefits from a regulated utility model that provides steady cash flow and predictable earnings. The company’s narrow economic moat allows it to grow revenue and earnings in the long run. What’s more, Fortis has raised its dividend for 50 years, making it a reliable choice for long-term investors. As of today, its dividend yield stands at 3.9%, with an estimated payout ratio of 72% of adjusted earnings. If you purchase the stock at a reasonable price, it can be a set-and-forget investment — perfect for investors seeking stability and predictable income.

Pro Tip: Consider waiting for a price dip — such as around $58 or lower — to maximize potential returns.

The power of dividends

While capital appreciation often takes the spotlight, dividends should not be overlooked. A strong dividend strategy can be the backbone of a diversified portfolio, providing investors with consistent cash flow. This is especially important during market downturns, when growth stocks may struggle to generate returns.

Dividend investing works on the premise that companies with strong profitability are willing to share their success with shareholders in the form of dividends. The best companies increase dividends over time as their earnings grow. Over the long haul, this allows investors to reinvest dividends and potentially grow their returns without having to sell any shares.

In a volatile or sideways market, dividends can serve as a reliable income source, buffering against potential losses in other areas of your portfolio. However, always ensure that the dividends you’re receiving are sustainable and backed by solid business fundamentals.

Invest in growth stocks at the right price

Investing in growth stocks offers exciting opportunities for wealth creation, but it can be tricky to find the right balance between growth potential and valuation. The key to success is purchasing growth stocks at favourable prices, ensuring you’re not overpaying for future potential.

One example is Alphabet Inc. (NASDAQ: GOOG), the parent company of Google. Alphabet is a dominant player in digital advertising, search, and cloud services. The company’s substantial operating cash flow, over $125 billion last year, and investments in high-growth sectors like AI, autonomous vehicles, and cloud computing give it considerable long-term potential. With the stock currently trading at $174 per share, below the consensus analyst price target of $218.72, it represents a buying opportunity for those seeking long-term growth.

For Canadian investors looking to avoid foreign exchange risk, Alphabet is available on the Neo Exchange.

Diversification is key

Lastly, diversification remains a crucial principle of building wealth in the stock market. While stocks form the core of your portfolio, don’t shy away from adding other asset classes like real estate, bonds, or even cash.

Cash may seem like a missed opportunity in terms of potential returns, but during market downturns, it’d become a powerful tool. Cash reserves give you the flexibility to purchase stocks at discounts when the market presents buying opportunities.

The Foolish investor takeaway

Building wealth with stocks is not about chasing short-term gains. By focusing on strong businesses, embracing the power of dividends, buying growth stocks at the right valuations, and diversifying your portfolio, you can create a solid foundation for consistent returns. Remember, the journey to financial success is a marathon, not a sprint.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Fool contributor Kay Ng has positions in Alphabet. The Motley Fool recommends Alphabet and Fortis. The Motley Fool has a disclosure policy.

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