Investing in Canadian Domestic Stocks

Canada is one of the wealthiest nations in the world, and one of the most desirable investment destinations for natives and foreigners alike. The Toronto Stock Exchange (TSX) enjoys its status as the eleventh largest stock exchange in the world, which gives Canadian investors plenty of great domestic stocks to choose from.  

If you’re new to investing, or you’re just looking for lucrative stock picks, Canada’s domestic stocks are a great place to start. Below we’ll break down the benefits of investing in Canada, as well as some domestic stocks you might want to add to your portfolio.  

Key Sectors in the Canadian Stock Market

Domestic stocks are companies that are truly “made in Canada.” These types of stocks trade on our exchanges (such as the TSX), they’re typically headquartered in Canada, and you’ll always see their share price in Canadian dollars. Domestic stocks are often contrasted with international stocks, which, as you can guess, are companies of non-Canadian origin. 

The Canadian stock market, particularly the TSX (Toronto Stock Exchange), is heavily weighted toward a few major market sectors. Understanding them helps you navigate where opportunities and risks may lie.

1. Financials

Banks, insurance companies, and asset managers dominate the Canadian financial sector. The Big Five banks—RBC, TD, Scotiabank, BMO, and CIBC—are globally recognized, stable, and dividend-rich. They tend to perform well in stable and growing economies and offer consistent returns.

2. Energy

Oil and gas companies like Suncor Energy, Enbridge, and Canadian Natural Resources play a significant role in the TSX. While subject to commodity price volatility, they are often reliable dividend payers and perform well during periods of economic expansion or rising energy demand.

3. Materials and Mining

Canada’s abundance of natural resources makes it a leader in mining and materials. Companies like Barrick Gold and Teck Resources capitalize on global demand for metals and minerals. These are cyclical investments, tied closely to the health of the global economy.

4. Utilities

Utilities like Fortis and Emera operate in non-cyclical sectors. These companies are generally seen as stable, low-volatility investments that perform well during market downturns, thanks to their steady demand and reliable cash flows.

5. Telecommunications

Major players like BCE and Telus dominate the Canadian telecom space. These companies provide steady income and can act as defensive stocks during uncertain markets.

What are some domestic stocks to invest in?

When it comes to domestic stocks, you have plenty of great options to choose from. Here are just five Canadian domestic stocks you may want to consider adding to your investment portfolio.  

Shopify

Shopify (TSX:SHOP) is a Canadian tech stock that has experienced explosive growth even since the onslaught of the COVID-19 pandemic. In fact, in 2020, Shopify posted a record revenue growth of 86% YoY, which helped the stock post a gain of 178.4% in that year alone.

Even though Shopify has slowed slightly due to a tech-correction in the second half of 2021, it’s still a lucrative stock to buy. Many retailers across the country (indeed the world) are still shifting physical stores to an e-commerce platform, which means Shopify hasn’t reached its peak yet. 

Enbridge

Enbridge (TSX:ENB) continues to be one of Canada’s most reliable domestic stocks. The energy company has a massive pipeline network, which transports one-quarter of all crude oil in North America. In addition to being a safe stock, Enbridge also has a hefty dividend payout, which it has increased each year for the last twenty-five years. 

Dye & Durham

Dye & Durham (TSX:DND) gives business professionals access to public records and government registry data. In recent years, Dye & Durham has built an impressively large customer base, due in part to the 19 acquisitions it has made since 2013. Riding on a strong demand for its products and services, Dye & Durham is definitely a domestic stock you don’t want to ignore.  

Lightspeed 

Lightspeed POS (TSX:LSPD) is a Canadian growth stock that specializes in point-of-sale and e-commerce software, specifically to businesses in the retail and restaurant sector. Though it’s not as big as Shopify, Lightspeed POS has plenty of room to grow, especially if it can manage to expand outside of Canada. 

Docebo 

Docebo (TSX:DCBO) helps companies train employees from a distance. It’s client base is growing rapidly—Amazon and Walmart are two of its biggest customers—and though its stock has been on a rocky ride since 2021, it’s still a strong company with a solid customer base that’s poised to grow even more. 

Other domestic stocks you might want to consider include: 

• TC Energy Corp (TSX:TRP)
• Suncor Energy Inc (TSX:SU)
• Telus (TSX:T)
• Brookfield Renewable Partners (TSX:BEP.UN)
• Nuvei (TSX:NVEI)
• Royal Bank of Canada (TSX:RY)
• Canadian National Railway (TSX:CNR)
• CIBC (TSX:CAFR)
• Constellation Software (TSX:CSU)
• Loblaws (TSX:L)
• Bank of Montreal (TSX:BMO)
• Thomson Reuters (TSX:TRI)

Types of Domestic Stocks to Consider

When building a domestic portfolio, consider diversifying across different types of stocks to balance growth and stability.

Dividend Stocks

Many Canadian companies, particularly in the financials and utilities sectors, offer regular dividend payments. These can provide steady income while reducing volatility. Look for companies with a long history of maintaining or increasing dividends.

Growth Stocks

Canada’s tech sector is small but growing. Companies like Shopify and Constellation Software have delivered strong returns to early investors. Growth stocks typically reinvest profits rather than paying dividends, so they are better suited for long-term capital appreciation.

Blue-Chip Stocks

Blue-chip companies are large, established firms with a strong history of performance and stability. In Canada, these include names like RBC, CN Rail, and Enbridge. These are often the backbone of a conservative investment portfolio.

Why invest in domestic stocks? 

When building an investment portfolio, many Canadians are tempted by the allure of international markets. While investing abroad can provide diversification, there are solid reasons to keep a significant portion of your investments in domestic stocks. Canadian companies are not only more familiar to the average investor, but they also come with fewer complications in terms of taxation, regulation, and currency exchange. For investors looking to reduce risk and simplify their investment strategy, domestic stocks offer a more straightforward, accessible path to building wealth.

Here are some of the main advantages:

• Easier to understand: It’s simpler to research and follow Canadian companies, especially compared to companies in countries where English isn’t the main language. Reading financial documents in another language—like Chinese, Russian, or Portuguese—can be a challenge. Even with English-speaking countries like the U.S. or U.K., tax rules can be more complicated when selling stocks and reporting capital gains.
• No currency risk: When you invest in foreign stocks, you often have to convert Canadian dollars into another currency. If exchange rates change in the wrong direction, you could lose money—even if your investment performs well. With domestic stocks, this isn’t a concern.
• Fewer Tax Complication: Taxation on domestic capital gains, dividends, and interest is far more straightforward than with foreign assets. Investing internationally may trigger foreign withholding taxes or require special tax filings, particularly in countries like the United States where estate and capital gains tax rules can get complex for non-resident investors.
• Lower fees: Most Canadian stocks are easy to buy through Canadian brokerages. While you can buy international stocks too, brokers often charge higher fees for foreign trades.

Should you invest in international stocks, too? 

At a certain point, you’ll probably want to add international stocks to your domestic ones. In fact, considering that the Canadian market is only about 3% to 4% of the total world market, you might achieve greater diversification by buying shares in international companies. 

Some experts recommend you dedicate a maximum of 20% of your portfolio to international stocks with the other 80% invested in domestic stocks. While portfolio balance is ultimately your decision, you don’t want to overextend yourself, especially if you’re investing in numerous foreign markets at once. 

But don’t rush it. While, true, you can diversify with international stocks, you can achieve diversification with Canadian domestic stocks, too. Start with Canadian companies you’re familiar with, then you can try your hand at foreign stocks. 

Starting investing in Canadian domestic stocks today! 

If you’re new to investing, Canadian domestic stocks can offer you an excellent opportunity to capitalize on growth, not to mention help you achieve your long-term financial goals, like saving for retirement or your childrens’ college. 

To get started, you can buy domestic stocks through any one of Canada’s online brokerages. You can also buy shares in an ETF or index fund that tracks the Canadian economy, which can also help you diversify your holding if you don’t have a lot to invest.