When it comes to investing, most people understand that the best strategy is to buy high-quality stocks, hold them for the long term, and let compounding do the work.
It sounds simple. But in reality, it can often be much harder than it seems.
Because what nobody really talks about is what happens when a stock you own goes nowhere for two or three years, or starts to decline in price soon after you bought it.
That’s when sticking to the buy-and-hold strategy can start to get very difficult.
A couple of weak quarters, negative headlines, or just a tough macro environment can be enough to make investors question their entire thesis, even if the business itself hasn’t actually changed.
That’s why investing ends up being more difficult than it should be, because the reality is, owning great businesses isn’t about avoiding volatility; it’s about having the confidence to hold them through it.
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Why long-term confidence matters more than short-term performance
Contrary to what many investors might think, the goal with investing isn’t to find stocks that always go up. Instead, it’s to find businesses that can continue performing and expanding their operations over time, even if the share price doesn’t always reflect that in the near term.
Because not every stock you buy will end up being a business you own forever. However, the ones that are can make a significant difference in your portfolio.
So, the key for investors is to have confidence in the stocks they own, but also to ensure that confidence doesn’t come from short-term price action, but from the quality of the business itself.
That means things like how consistent the company is, how it generates cash flow, and whether it can continue executing over time. That’s what actually matters because there’s a big difference between a stock that’s temporarily underperforming and a business that’s deteriorating.
And a lot of times, especially in tougher economic environments, entire sectors can come under pressure even when the underlying companies are still performing relatively well. And that’s often where the best opportunities show up for long-term investors who can see the big picture.
Because when you have a business that’s still profitable, still generating cash flow and still paying its dividend, even if it’s had a few rough quarters, there’s no reason to lose confidence in the business.
And a perfect example of that in recent years is Canadian Tire (TSX: CTC.A).
Why Canadian Tire is one of the best stocks to buy and hold for years
There’s no question that Canadian Tire is one of the most popular retailers in the country.
However, at the same time, from mid 2021 to mid 2024, Canadian Tire’s share price declined by more than 33% as it faced numerous headwinds such as impacts from the pandemic, inflation and higher interest rates putting pressure on consumer spending.
However, while margins were certainly compressed and Canadian Tire’s long-term growth plans were impacted, the company’s business model and well-known brand didn’t just deteriorate overnight.
In fact, Canadian Tire remained profitable, continued generating solid cash flow, and not only maintained its dividend throughout all of it, but continued to increase it annually, growing the dividend by more than 50% over the last five years. In other words, although the stock struggled significantly, the impact on the business was far less meaningful.
That’s not exactly surprising, though, because when you step back, even with all the macroeconomic headwinds affecting its operations, Canadian Tire is still a high-quality business.
It has one of the strongest retail brands in the country, and on top of that, its loyalty program helps drive repeat business, and its investments in e-commerce and logistics continue to improve its operations over time.
It’s not a flashy growth stock, but it’s a reliable, well-run company that continues to execute and expand its operations over time.
And despite all the macro pressure over the last few years, it has still been able to generate the kind of earnings and cash flow that support its dividend.
That’s why, even with a yield of roughly 3.7%, Canadian Tire remains one of the best dividend growth stocks to buy and hold for the long haul.
