I’ve always thought that long-term investing starts with making small incremental purchases over periods of time. Indeed, dollar cost averaging into a given stock (or index funds for that matter) is a time-tested way of growing one’s wealth over a very long period of time. It’s a strategy I use in my own personal portfolio, and one that I’d recommend all long-term investors consider for their own.
The thing is, identifying individual stocks with the kind of staying power (and profit growth potential) that can drive both dividend and capital appreciation upside over a long period of time is easier said than done. Companies go out of business for all sorts of reasons, and this is a space that’s inherently risky. Investors can see incredible returns in part because they’re the ones taking this risk.
That said, in the world of Canadian stocks, there are a few names I think remain unmatched for long-term investors seeking upside. Here are two of my top picks right now.
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Toronto-Dominion Bank
I continue to come back to Canadian bank stocks as a top way for global investors to gain exposure to this sector. I’m going to stand by Toronto-Dominion Bank (TSX: TD) as a top way to play the banking sector in Canada.
TD has seen very robust revenue and profit growth in recent quarters, driven by strength within the company’s core lending portfolio. That may come as a surprise to some investors, given the strain other lenders (particularly regional lenders in the U.S.) have seen of late. And with such a robust retail banking business in the U.S. market, one might immediately point to a bank like TD as one with higher risk than the market is pricing in right now.
The thing is, TD’s valuation multiple remains lower than that of most of its American peers. And as a leading Canadian bank, TD benefits from a strong regulatory backdrop that limits downside during bear market cycles.
So, no matter where you see the economy headed from here, I’d argue TD has one of the best growth profiles of its peers. That’s valuable, and it’s why I’d argue TD stock has rallied like it has over the past year.
Fortis
One of the most stable companies in the Canadian market, Fortis (TSX: FTS) has turned out to be an absolute gem for investors who bought this stock at any point in time over the past five decades.
That’s a difficult statement to make for any stock in the market, really. But Fortis’ core business model of providing electric and natural gas utility services to millions of residential and commercial customers is a model that’s about as time-tested as they come. We’re going to need to power our homes and businesses for decades (and centuries) to come. So, if there’s an industry or sector that’s about as resistant to change as they come, it’s the utilities space.
What’s also interesting about this recent move is it continues to drive down Fortis’ dividend yield, a key component of the total returns Fortis has provided long term. While some investors may be waiting for a share price pullback (and higher yields) to jump in, I’d argue that Fortis’ dividend growth profile over the long term should return this stock to the yield level most investors are accustomed to.
With a 3.6% yield and solid capital appreciation upside leading to around 10% total return upside for investors over long periods of time, this is the way I’d hold firm in a market that could become very volatile in the years to come.
