One of the best ways to balance stock investment risk and reward is to own a diversified portfolio. Owning a mix of stocks across industry, sector, and geography can help provide steadier upside with less downside over time.
Perhaps you are wondering how to build a diversified portfolio? Well, here’s a five-stock mini-portfolio to split $35,000 equally into $7,000 position allocations.
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A dividend stock
Pembina Pipeline (TSX: PPL) is a solid bet for long-term dividend income. It operates a high-quality portfolio of pipeline, infrastructure, and midstream assets in Western Canada. In many regions, it provides the only means for energy companies to get their product to market.
Over 80% of its income is contracted. That contracted income widely supports the dividend. Any excess cash it earns goes to Pembina’s balance sheet or towards its capital growth plan.
Pembina is one of only a few companies building an LNG terminal in Canada. This project should help fuel long-term growth. Pembina yields 5.5% right now.
A dividend growth stock
Dividend growth stocks are attractive because they provide income but tend to also deliver great total returns. Intact Financial Group (TSX: IFC) is a wonderful example of this dynamic. While it only yields 1.7%, it has grown its dividend by a 10% compounded annual growth rate (CAGR) in the past 10 years.
In that same period, its stock has risen by 240%. Combined with its dividend, total returns are over 330%. Intact has consolidated the Canadian insurance market to become the leading property and casualty provider.
Not only should it grow in Canada, but it has a rising specialty division and growing business in the U.K. Intact is a top bet for a mix of income and growth ahead.
A growth company
Every Canadian should have some exposure to a little higher risk to achieve higher growth. Small cap stocks can be a great place to find this. VitalHub (TSX: VHI) has a market cap of $612 million. Yet, its growth horizon could be many multiples larger.
VitalHub provides crucial software services to the healthcare industry. It has consolidated a bunch of smaller providers. The software solutions provider has a cost-efficient development arm in Sri Lanka. The company has a long runway to sell its services and acquire more small healthcare software businesses in the years ahead.
A value company
Secure Waste Infrastructure (TSX: SES) has a little bit of something for everyone. It is misunderstood as a cyclical energy business. So, its stock trades at a considerable discount to other waste services peers. There is value if its multiple rerates closer to that of its competitors.
It is growing by a high single-digit rate (which happens to be better than the industry). Its waste infrastructure is essential to the energy sector, so it has highly recurring revenues.
Lastly, the company pays a decent 2.5% dividend yield. It also is buying back a tonne of stock. This could help it bridge the valuation gap over time.
A global company
If you want exposure to the broader world, WSP Global (TSX: WSP) is a great way to diversify beyond just Canada. WSP is one of the largest advisory, engineering, consulting, and design companies in the world. While it has substantial operations in Canada, WSP has growing operations in the U.S., Europe, Asia, and Australia.
Around the world issues like urbanization, climate change, aging infrastructure, and digitization are creating substantial demand for WSP’s services. It has been a serial acquirer of advisory and consulting firms. It is likely to continue this practice.
If you want a large cap stock that is still quickly growing, WSP is a great stock for global exposure.
