Are you looking for safer Canadian stocks to add to your portfolio for less volatility?
If so, you have to look hard, as Canadian markets have been rallying and outperforming the global indexes all year long. For the most part, valuations in Canada remain cheaper than those seen in the United States, with the TSX composite sporting a P/E ratio of 19.7. That’s significantly lower than the most-watched U.S. indexes, but higher than the TSX’s own historical norm of about 17. It’s not crazy to be concerned about an overheated market right now.
The question is, which stocks should you buy? A lot of stocks are pricey right now, and pricey stocks tend to be volatile. If you’re just getting started investing with a sum like $7,000, you don’t want to take on too much risk. With that in mind, here are two safer Canadian stocks to buy now with $7,000.
Fortis
Fortis Inc. (TSX:FTS) is a Canadian stock that is known for its solid long-term performance and low volatility. The company has one of the longest dividend growth streaks on the TSX Composite Index, having increased its payout 52 years in a row. This incredible dividend growth has been supported by real earnings growth rather than rising payout ratios; through all the dividend hikes, Fortis’ payout ratio has consistently hovered between 65% and 70% over the years.
What makes Fortis stock so safe?
For one thing, the company is a utility, and being a (regulated) utility provides advantages in revenue stability. That’s because such companies face few competitors and provide absolutely essential services that people absolutely can’t do without. A second thing is that Fortis has actually invested in growth and expansion over the years, which not all utilities do. A good example of this “expansion” is the company’s current CAPEX spending, which will support a higher rate base in the future. So Fortis has a lot of advantages, but its shares trade at just 21 times earnings – not too pricey at all.
Alimentation Couche-Tard
Alimentation Couche-Tard Inc (TSX:ATD) is a Canadian gas station/convenience store company. It operates the popular nationwide Circle K chain. It also operates gas stations in the U.S., Europe, and beyond. It’s a very stable, well-managed company that tends to compound its earnings over the long term.
Alimentation Couche-Tard makes money off of gas sales,and is somewhat like an oil company in that way. It also makes goods selling merchandise behind the counter. So, it has different revenue streams that give it the ability to profit in many different economies. The sale of “vice products” (e.g., cigarettes, lotto tickets, and in some provinces alcohol) is also thought to be a stable and recession-resistant business model. ATD is by far the most dominant gas station company in Canada, with 6,958 gas stations nationwide. Despite all these advantages, it trades at just 18.8 times earnings.
The bottom line
Cheap stocks are not easy to find these days. However, they do exist. Sometimes you can even find stocks that are both cheap and high quality, such as the two mentioned in this article. Both would be great top holdings in a well-diversified $7,000 starter portfolio.
