How I'd Build a Foundation of Canadian Value Stocks in My Investment Strategy

How I’d Build a Foundation of Canadian Value Stocks in My Investment Strategy

Canadian investors can explore iShares Canadian Value Index ETF for value stock ideas to build a foundation for their diversified portfolios.

Kay Ng

Author Bio Kay graduated from the University of British Columbia with a Bachelor of Science in Computer Science and furthered her studies in financial markets, finance, and financial accounting. She began investing in dividend stocks in 2008, turning an early interest into a lasting passion. Over the years, Kay has refined her investment approach to focus on high-quality businesses, using fundamental analysis and valuation to identify long-term investment opportunities. Her investment research and articles have been featured in The Motley Fool, Sure Dividend, and Seeking Alpha. Outside of investing, Kay enjoys playing the piano, from popular songs learned by ear to challenging classical compositions. Her favourites include Fantaisie-Impromptu by Frédéric Chopin and La Campanella by Franz Liszt. Education Bachelor of Science (BSc) in Computer Science, University of British Columbia Further studies in financial markets, finance, and financial accounting Areas of Expertise Dividend stocks, fundamental analysis, company valuation, quality investing, long-term investing, business fundamentals, and identifying investment opportunities in high-quality companies. Social Media Profiles LinkedIn Favorite Investment Quotes “The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” — Benjamin Graham “A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” — Warren Buffett

Published April 2, 2025 10:00 am EDT

When crafting a robust investment strategy, value stocks are an essential building block, offering a solid foundation for long-term growth and stability. For Canadian investors, iShares Canadian Value Index ETF offers current ideas to gain exposure to undervalued companies. This exchange-traded fund (ETF) focuses on large- and mid-sized Canadian businesses that are trading below their intrinsic value, providing a balance of dividend income and capital appreciation — with reduced risk of volatility and speculation if you invest through the ETF.

Identify high-quality value stocks

A key benefit of investing in value stocks is their potential for both capital growth and consistent dividend payouts (for those that pay out nice dividends). Among the top 10 holdings of the XCV ETF are some of Canada’s most respected blue-chip companies, such as the Royal Bank of Canada (TSX: RY), Canadian Natural Resources (TSX: CNQ), and Manulife (TSX: MFC). These companies not only offer attractive dividends but also represent stable, well-established leaders within their industries.

Royal Bank of Canada: A reliable blue-chip investment

Royal Bank of Canada is one of the best-quality businesses within the ETF. The blue-chip stock delivered an average annual return of 12.2% over the past decade. At a price of approximately $162 per share, RBC boasts a dividend yield of 3.6%. Analysts suggest that the stock is currently undervalued by about 13%, with the potential for an upside of 15% in the near term.

Despite recent market fluctuations, RBC’s dividend remains sustainable, with a payout ratio estimated at 45% of adjusted earnings this year — an indication of strong financial health along with its AA- S&P credit rating. Given its solid track record and the potential for near-term gains, RBC is a good consideration for investors looking to build long-term wealth.

Canadian Natural Resources: A dividend-growth powerhouse

Another strong candidate for a Canadian value stock portfolio is Canadian Natural Resources. This oil and gas giant has delivered impressive total returns of nearly 14% per year over the last decade. Trading at under $44 per share, CNR offers a high dividend yield of 5.4%, making it particularly attractive for income-focused investors. The stock is currently believed to be undervalued by about 20%, with analysts predicting a near-term upside of around 25%.

Beyond its potential for capital appreciation, Canadian Natural Resources has earned its reputation as a Canadian dividend knight, with a remarkable +20-year streak of dividend increases. Its 10-year dividend-growth rate of nearly 17% further underscores the company’s commitment to returning value to shareholders.

Manulife: A steady performer with growth potential

Manulife is also a top holding in the XCV ETF. Over the past decade, Manulife has delivered a solid annual return of 12.5%, and its stock is currently priced at about $45 per share, offering a dividend yield of 3.9%. With shares trading at an estimated 9% discount, there is an upside potential of around 10% for investors over the near term.

Manulife’s long-term performance is bolstered by a 10-year dividend-growth rate of nearly 11%. While the stock is considered fairly valued at the moment, its consistent dividend growth and solid performance make it a good consideration for those seeking both income and long-term capital gains.

Building a value-driven portfolio

By incorporating these Canadian blue-chip stocks into your investment strategy, you can create a diversified portfolio with strong fundamentals. The combination of dividend income and capital appreciation potential in undervalued stocks offers both stability and growth, allowing investors to weather market volatility while generating consistent returns. Whether you’re just starting out or looking to adjust your current holdings, Canadian value stocks like RBC, Canadian Natural Resources, and Manulife are good candidates for building a solid foundation in your investment strategy.