In Wall Street lingo, blue chips are the large, well-established companies that enjoy investors’ trust and a loyal customer base. This trust is built over the years by surviving crises and maintaining financial stability through thick and thin. These companies have also had their fair share of pitfalls and mistakes, but they overcame them and grew stronger. Blue chips are reliable stocks you can predict with higher accuracy because of a certain level of assured cash flow.
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Three Canadian blue-chip stocks to hold for years
Canada has some prominent names you have heard or seen around you. They are so integrated in your life that you cannot imagine life without them.
Shopify stock
Shopify (TSX: SHOP) is one such stock that has made its mark in the Amazon-dominated e-commerce space. The two use completely different approaches. Amazon allows brands and sellers to register on its marketplace and sell their products alongside other competitive brands. Shopify allows brands to open their own digital store away from competitors. Think of it like a McDonald’s outlet in a food court and a McDonald’s restaurant with dedicated parking and seating. The food court outlet and the restaurant format co-exist, each catering to a loyal customer base.
Similarly, Shopify and Amazon are both growing. In fact, Shopify is expanding in international markets and adopting artificial intelligence to enhance the shopping experience. The results are visible in accelerated revenue growth rates, reduced operating expense ratio, and strong free cash flow margins. The resilience of continued operating profits and positive free cash flow for three years despite rising trade tensions, inflation, and IT job losses shows Shopify’s customer retention.
There might be years of slow or no growth, but the long-term growth potential makes it a buy-and-hold. With Shopify, you can even time your purchase between March and June when the stock witnesses seasonal weakness.
The dividend blue chip stocks worth holding for years
With a market cap of $147.5 billion and having Canada’s largest proven oil sands reserves, Canadian Natural Resources (TSX: CNQ) is an energy blue chip to own in every cycle for its resilient dividend growth. It produces oil and natural gas and sells them in the open market. Its low-maintenance, slowly depleting reserves give Canadian Natural Resources the advantage of a low breakeven price in the mid-US$40s after including dividends.
The energy producer has grown its dividend even during the 2016 oil crisis by diversifying its product mix across Synthetic crude, light crude, heavy crude, and liquefied natural gas (LNG). This resilience in withstanding a crisis makes the stock worth holding. CNQ is currently trading near its all-time high because of high energy prices from the Iran war escalations. I am bullish on the stock as it will benefit from Canada’s LNG export opportunity to Europe and Asia.
With Canada opening its energy reserves to more markets, Canadian Natural Resources can produce more LNG and sell it at competitive rates instead of discounted prices. Add to it the strong balance sheet discipline of accelerating debt repayment until it hits the medium-term target of $13 billion. The net debt was $14.5 billion in the second quarter, and I won’t be surprised if the company reduces it to $13 billion by the end of 2026. This discipline gives it financial flexibility to buy more reserves while maintaining financial efficiency to sustain a downturn.
The banking blue chip you can’t miss
You cannot miss investing in the banking blue chip, Royal Bank of Canada (TSX: RY). Operating for over 100 years, RBC is deeply integrated into the economy. Its Canadian and United States commercial and personal banking continues to earn regular cash flow when interest rates rise, and the wealth management arm outperforms when the stock market performs. The well-diversified portfolio helps the bank grow its dividend at an average annual rate of 8% in the last 15 years.
RBC has been growing dividends in 24 of the last 26 years, with the only two years of no growth being 2009 and 2010, when the Global Financial Crisis shook the world’s banking system. It provides both dividend growth and capital appreciation when the stock market performs. The share price growth over a three-to five-year period can make an investing case.
