Shopify

Shopify (TSX:SHOP)(NYSE:SHOP) leads the Canadian tech sector with a market cap of $45 billion and continues to grow. This stock has experienced incredible momentum and has risen 117% year to date.

While the subscription business model for Shopify is straightforward, it is the other side of the business that is drawing new interest from analysts. Shopify Plus is a premium offering that targets enterprise e-commerce and powers some of the largest brands in the world. Shopify Plus now accounts for 26% of monthly recurring revenue and is an important piece of the growth story for Shopify.

Shopify continues to drive potential profits back into the company to fuel growth. This will support new opportunities, such as international growth.

Constellation Software

Constellation Software (TSX:CSU) has a very clear business model and is the second-largest tech stock in Canada with a market cap of $25.6 billion. It acquires, manages, and builds software solutions for vertical markets. While it is becoming more difficult to acquire software companies due to increased competition, Constellation Software has acquired more than 260 software startups since the company was founded in 1995.

Constellation Software employs a “Warren Buffett” approach to acquisitions. It looks to buy a company with an exceptional manager, does not engage in unfriendly takeovers, and does not take over the day-to-day operations of a company. It is this approach that has allowed the company to grow and build goodwill in the industry so that acquisition targets are comfortable joining Constellation Software.

While Constellation Software pays a small dividend, it is the acquisition growth strategy that has allowed the company to deliver such high returns to investors.

CGI

CGI (TSX:GIB.A)(NYSE:GIB) started out as an IT consulting firm but now makes the majority of revenue from IT outsourcing, systems integrations, and business consulting. It is the third-largest tech stock in Canada with a market cap of $24.5 billion.

The growth strategy for CGI is a mix of organic growth and acquisitions. IT outsourcing has become a big driver of organic growth for the company with over 50% of revenue coming from outsourcing. At the same time, CGI has a history of using a buy-and-build strategy to drive growth. CGI currently has over $500 million in cash reserves and can wait for the right opportunity to make acquisitions.

Investors should expect CGI to continue creating shareholder value, as it plans to double in size over the next five to seven years. This will likely be accomplished by continued organic growth combined with some smart and well-timed acquisitions along the way.

Investor takeaway

The TSX index is grossly under-represented by technology stocks, and investors should consider Shopify, Constellation Software, and CGI to gain exposure to the technology sector in Canada. These three companies have very different business models but have all produced returns for investors that consistently beat the broad market.

The post What Are the 3 Largest Canadian Technology Stocks? appeared first on The Motley Fool Canada.

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As investors transition toward retirement, it becomes important to have a reliable income stream that won’t be cut in a recession. Let’s go beyond the five-year period of dividend growth required for Dividend Aristocrats and look at three stocks that increased dividend payments during the last major market downturn in 2008.

Telus

Telus (TSX:T)(NYSE:TU) is currently yielding a 4.5% dividend and is a good option for income-focused investors. Unlike competitors who have diversified into media assets, Telus derives the majority of revenue from telecommunications with wireless revenue accounting for 57% of total revenue in 2018. The telecom infrastructure built by Telus has the benefit of producing a predictable and recurring income stream.

While the growth of the stock price is modest, the dividend growth is anything but modest with an annual average increase of 9% over the past 10 years. Telus saw the stock price cut in half during the 2008 recession, but the dividend held steady and quickly began to grow again. Telus recently announced the upcoming dividend payable in July will increase by 3.2%.

Enbridge

Enbridge (TSX:ENB)(NYSE:ENB) might be the perfect dividend stock for retirement. The stock price can fluctuate based on the price of oil and other news, but that should not worry investors who have seen the company increase dividend payouts for the last 23 years.

Enbridge has already announced intentions to raise the dividend by 10% in 2019 and 2020. This would place Enbridge in the elite group of American Dividend Aristocrats which require 25 years of continuous dividend growth. Considering the current dividend yield is 5.9%, investors can enjoy high quarterly payments without worrying about the sustainability of those payments.

Fortis

While a 3.5% dividend yield from Fortis (TSX:FTS)(NYSE:FTS) doesn’t immediately jump out at investors, it is the dividend-growth story that makes Fortis one of the most famous TSX dividend stocks. Fortis has proven that slow and steady annual dividend increases are the way to build a sustainable long-term dividend-growth stock. It is this approach that has led to 45 consecutive years of dividend growth.

The Canadian utility is a stable stock that produces an incredibly stable dividend. The 45-year dividend-growth history for Fortis shows no correlation to market performance or downturns. Fortis is the type of stock you want to own in retirement.

Investor takeaway

Dividend stocks often form the backbone of retirement portfolios, but it is hard to accurately judge the sustainability of a dividend when we have experienced a decade-long bull run. While not an accurate prediction of future performance, it is a useful exercise to look back and evaluate how a dividend performed during previous market downturns.

The post 3 Dividend Stocks to Build a Recession-Proof Portfolio and Generate Passive Income appeared first on The Motley Fool Canada.

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It has been an exciting month for shareholders of the three biggest publicly traded Canadian commercial airlines. Over a one-month trailing period, the share price of Air Canada has risen 26%, WestJet has increased by 58%, and Transat A.T. has shot up 117%. The movement was the result of two big news stories.

For WestJet, an agreement was reached with Onex to acquire and take the airline private for $31 per share. For Air Canada and Transat A.T., exclusive talks were announced that indicate interest for Air Canada to purchase Air Transat and associated travel businesses for approximately half-a-billion dollars and $13 per share. While not yet finalized, both agreements would bring major change to the Canadian aviation industry and could result in only a single publicly traded Canadian commercial airline.

Air Canada has maintained healthy growth predictions for 2020 and 2021 but has recently suspended the 2019 financial forecast due to uncertainty with the Boeing 737 Max 8 aircraft. This should be a strong warning sign to investors that Air Canada expects to take a significant short-term hit from a grounded fleet of 24 Max 8 aircraft.

Considering the stock has risen more than 50% year to date, investors should approach Air Canada with caution and wait for a better entry point. Investors will be able to make a more well-informed decision after the Boeing 737 Max 8 returns to service and Air Canada can disclose the full impact of temporarily losing 24 aircraft.

Where should investors look in the short term? Instead of purchasing a commercial airline, investors should consider CargoJet (TSX:CJT) as an alternative way to invest in the Canadian aviation industry. CargoJet, as the name suggests, is a cargo airline operating in Canada and select international destinations.

CargoJet is well established as the backbone for e-commerce deliveries for all major couriers in Canada as well as the go-to choice for Amazon Prime deliveries across Canada. With the ability to reach 90% of the Canadian population through overnight deliveries, CargoJet has a leadership position in the Canadian e-commerce industry and is looking to grow by taking advantage of new cross-border e-commerce opportunities.

Investor takeaway

Canadian investors should wait for the conclusion of the Boeing 737 Max 8 saga before purchasing Air Canada stock. Long-term growth prospects remain strong for Air Canada, but investors should anticipate a buying opportunity after Air Canada can better understand the business impact from losing 24 aircraft. CargoJet remains a strong alternative for investors as demand for high-value and time-sensitive shipping continues to increase.

The post Avoid Air Canada (TSX:AC) Stock if Investing in Aviation! appeared first on The Motley Fool Canada.

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Aside from cross-listings for the Big Five Canadian banks and the Brookfield Five, consider these three dividend-paying companies for direct U.S. exposure in your TFSA.

Canadian National Railway (TSX:CNR)(NYSE:CNI)

CNR is a TSX favourite and one of the hand-picked stocks that make up the Bill & Melinda Gates Foundation Trust. As the largest single shareholder of CNR, Gates has a history of investing in companies with strong competitive advantages.

CNR is often praised as the only North American rail network capable of serving three coasts. But what exactly does that mean? CNR has a rail network connecting the east and west coasts of Canada and runs through the heart of America, terminating at the Gulf of Mexico. In order to strengthen a position at these coasts, CNR has signed six supply chain agreements, including one with the Port of New Orleans.

While oil pipelines come and go and are frequently used as political tools, the CNR rail network is perfectly positioned to continue moving crude oil to the Port of New Orleans, which acts as a major logistics hub for the distribution of crude oil.

Nutrien (TSX:NTR)(NYSE:NTR)

Nutrien has been an interesting company to watch after coming to life from the merger of Potash Corporation of Saskatchewan and Agrium in 2018. There is no doubt that competitors for Nutrien include potash, phosphate, and nitrogen producers, but that is only one side of the business. The other side of the business comes from Agrium, which brings a huge network of retail stores located in seven countries and provides products and services for farmers and growers.

I believe the retail side of the business is more attractive and is the reason I was an Agrium shareholder before the merger. With 1077 retail stores in the United States, Nutrien gives investors direct U.S. market exposure to the agriculture industry which has proven to be recession resistant. Everyone needs to eat.

Waste Connections (TSX:WCN)(NYSE:WCN)

Waste Connections has a tremendous track record of growth and is the third-largest waste management company in North America. Investors receive immediate access to the U.S. market since the majority of revenue is derived from operations in the U.S. with Canada accounting for only 16% of revenue.

Waste Connections entered the Canadian market with the 2016 acquisition of Progressive Waste Services of Canada. The Canadian branch is now branded as Waste Connections of Canada.

Uncertainty surrounding the oil industry is one area of concern for Waste Connections, but it is a small concern, since revenue from waste handling for the oil industry makes up only 5% of total revenue.

Investor takeaway

Buying cross-listed companies on the TSX is a great strategy for any Canadian investor, but it can be even more beneficial for your TFSA since it provides U.S. market exposure without the hassle of withholding taxes on American dividend-paying stocks. Save the American dividend-paying stocks for your RRSP and enjoy all the benefits that come with investing in America.

The post TFSA Investors: 3 Interlisted Companies on the TSX and NYSE appeared first on The Motley Fool Canada.

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With an impressive list of customers in over 100 countries, Montreal-based Lightspeed offers a point of sale (POS) cloud product and other services for small- and medium-sized businesses. Sound familiar? It’s an easy comparison to Shopify’s 2015 IPO success. Lightspeed’s core verticals target retailers and restaurants. Lightspeed offers extras like accounting software, inventory and employee management, kitchen display systems, e-commerce services, and loyalty programs.

But it’s not all good news for Lightspeed. There is a huge addressable market to service small- and medium-sized businesses, but it is in a crowded space with heavy competition. While Lightspeed does not see itself in the same market segment as Shopify it is going down a similar path that will lead to increased competition in the future.

Shopify is an e-commerce platform first followed by add-ons like POS systems. Lightspeed brings in new customers with its POS product first before upselling them extras like e-commerce. Lightspeed is also competing against some big global players like Square, PayPal, and other financial technology companies that are targeting small- and medium-sized businesses.

What about the financials? Just like other growing tech companies, Lightspeed is not yet profitable, and the path to profitability is not clear. Market analysts are asking many of the same questions they asked after the Shopify IPO. In a Canadian market that is starved for tech IPOs, one should worry that Lightspeed’s initial trading price and current valuation are artificially inflated by a lack of viable Canadian options.

What does the future hold for Lightspeed? Its market segment is fragmented at the moment with lots of small products competing for the same customer base. There is a big opportunity for Lightspeed or other companies to consolidate and gain customers through acquisitions. Instead of becoming an acquisition target, Lightspeed has previously bought a series of companies and it plans to continue buying to power global growth.

Investor takeaway

There is an element of pride when a Canadian technology company is able to successfully raise money like competitors in Silicon Valley, but that should not cloud your investing judgement. Are the growth prospects for this company enough to outweigh the operating losses? Has the race begun to acquire this tech unicorn before it becomes too large? Lightspeed has attracted a lot of attention and investor money with its IPO, but it is still a risky bet.

The post Meet This Canadian Tech Unicorn Drawing Comparisons to Shopify (TSX:SHOP) appeared first on The Motley Fool Canada.

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Leasing space from a data centre is an attractive proposition for companies that don’t have the necessary expertise within their organization or don’t want to deal with the headaches of running their own complex infrastructure and data centre. From an investor standpoint, the great news is that data centre tenants are usually required to enter long-term contracts that ensure a steady income stream and include contractual rental rate increases.

There are quite a few data centre REITs listed on American exchanges such as Equinix and Digital Realty Trust , which are two of the largest players in the industry. But what about Canada?

Summit Industrial Income REIT (TSX:SMU.UN)

Summit owns a portfolio of industrial properties across Canada and has entered a partnership with Urbacon to build data centres in key Canadian markets. The partnership with Urbacon, a privately owned company, brings a great deal of experience building and managing data centre properties in Canada.

While Summit’s initial investment was the purchase of a 50% interest in a data centre in Richmond Hill, Summit has exclusive rights to participate in Urbacon’s future data centre projects in Canada. With the initial Richmond Hill data centre now fully leased to a major cloud provider under a long-term contract, construction had already begun on a second data centre at the same location to meet the growing demand.

Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP)

Brookfield Infrastructure Partners owns one of the largest and most globally diverse infrastructure networks around and it recently closed an acquisition of AT&T’s data centres for US $1.1 billion at the beginning of 2019.

Brookfield Infrastructure Partners has established a new wholly owned company named Evoque Data Center Solutions to manage the acquired AT&T resources, which include 18 data centres in the United States and 13 outside the United States.

While still a smaller segment of revenue, data infrastructure made up 6.25% of the funds from operations for Brookfield Infrastructure Partners in 2018. The addition of the U.S. data centres rounds out a growing global portfolio of data centres that provide services to customers under long-term contracts.

Investor takeaway

The bear case against investing in data centres is the ever-increasing trend towards SaaS (Software as a Service) products that don’t require a company to host their own hardware and software. But for every business dollar that is transitioning towards cloud products, the companies building these cloud products need more processing power and storage than ever before. Rapidly growing cloud companies rely on the flexibility of scaling their operations in colocation data centres, so they can add more capacity on demand.

Data centre REITs are well positioned to profit from these cloud computing companies and the growing demand for data centre space. This offers investors a unique opportunity to take advantage of the growing demand in combination with a predictable and recurring income stream.

The post 2 Ways to Invest in Data Centres appeared first on The Motley Fool Canada.

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