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Blue chip stocks have always been a staple of any experienced investor’s long-term investment strategy.
Unlike growth stocks, where investors are looking to profit off a short-term appreciation in the value of a stock (at the risk of volatility), blue chip stocks are the stocks they invest in for the long term.
Stocks with a proven track record of performance over long periods.
They are more resilient and tend to weather stock market storms better than growth stocks.
Equity investments are subject to market risks and may not be suitable for all investors. If you have any doubts as to the merits of an investment, you should seek advice from an independent financial advisor. So please invest at your own risk.
What Is a Blue Chip Stock?
The term blue chip was derived from Poker. In poker, blue chips are considered the most valuable of chips.
An apt comparison since a stock that embodies quality, stability, and profitability during economic ups and downs is considered the holy grail of any investment portfolio.
A particular set of features define what a blue chip stock is, and they are:
- They have a large market capitalization.
- They are usually dividend stocks(although not always).
- They are usually at the top of their respective industries and sectors.
- They have established products and services that they offer.
In today’s review, we will be looking at the top blue-chip stocks on the Toronto stock exchange.
Ranging from industries such as energy, communications, consumer goods, banking, and, more recently, technology, these are some of the blue-chip companies that every investor should have as part of their investment portfolio(or, at the very least, look into).
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Top Canadian Blue Chip Stocks.
Fortis Inc (Energy).
Founded in 1987, Fortis is a diversified electric utility holding company.
They currently have ten utility operations operating in the United States, Canada, and the Caribbean and currently have 3.4 million utility customers.
Since they deal with gas and other energy utilities, the company is highly regulated. Because of this, they report far more consistent cash flow compared to their less-regulated counterparts.
They are currently valued at $64 billion in assets and had a $9.4 billion fiscal revenue year in 2021.
Fortis currently holds the record for one of the longest dividend growth streaks at 48 years and have approximately 4% yield on their stock.
They have also grown their dividend at a 5-year rate of 6.1 percent. Their 6% target growth rate has also been extended to 2025.
This was very welcome news for investors in the stock.
With their future growth tied to the increased energy needs of an ever-growing population, Fortis’ growth is almost certainly guaranteed over the long term.
Enbridge Inc (Energy).
Enbridge (TSX: ENB) was founded on the 30th of April 1949 and is based in Calgary, Alberta.
It is the largest energy infrastructure company in North America.
They have the most extensive pipeline system in North America, with 192,000 miles of natural gas and NGL pipelines and an additional 17,000 miles of active crude oil and liquid transportation pipelines.
They currently have $104.62 billion in assets.
The company has a dividend yield of 6.62%, a forward dividend yield of 6.35%, and a dividend payout ratio of 140%.
Its consistent growth, sheer size, and dividend yield performance over its many years of operations are great indicators of why Enbridge has been a consistent blue-chip stock for many Canadian investors.
Canadian Pacific Railway Ltd (Transportation)
Canadian Pacific railway ltd (TSX: CP) owns the Canadian pacific railway, which was incorporated in 1881.
The railway network is the largest in Canada, with extensive operations in the U.S as well.
It is classified as a class 1 railway network (The largest classification).
The company initially owned 20,000 km of railroad, but this increased after the Kansas city southern railway was purchased.
The company expects an annualized return of $ 1 billion within the first three years from synergies created by the acquisition.
They currently have $89 billion in assets and had a $7.71 billion fiscal revenue year in 202o.
The company has a dividend yield of 0.8%, a forward dividend yield of 0.73%, and a dividend payout ratio of 26%.
In 2020, they raised their dividend by 15% and extended their five-year growth streak.
The growth prospects for the company are very promising, with expected double-digit earnings projected by analysts.
Royal Bank Of Canada (Banking)
The Royal Bank of Canada(TSX: RY) is the largest Canadian bank by market capitalization. Founded in 1864, they have 158 years of operating history.
The company has been awarded Canada’s most valuable brand award six years in a row, and its stock proved very resilient during the economic uncertainty caused by the Covid-19 pandemic in 2020.
They currently have a market cap of $172 billion in assets and had a CAD$49.69 billion fiscal revenue year in 2021. They also clocked in a net income of CAD$16.05 billion for the same year.
The company has an 11-year dividend growth streak, a dividend yield of 3.91%, a forward dividend yield of 4.19%, and a dividend payout ratio of 43%.
The Royal Bank of Canada recovered quickly after the Covid 19 induced economic contraction without cutting their dividend.
The Royal Bank of Canada should be a no-brainer blue chip stock for any Canadian investor since banking is one of the most resilient industries in Canada.
Metro Inc (Food Retailer)
Metro Inc (TSX: MRU) is the third largest grocer in Canada.
Founded in 1947, they currently operate 953 grocery stores and 648 drug stores. Their operations are primarily in the Ontario and Quebec provinces.
The company has been a model of consistency and steady growth across its years of operations.
Not only did it weather the storm of the Covid pandemic, but it also experienced growth in its E-commerce operations.
Something the company is now starting to double down on, and this should result in significant growth of online sales for the company.
They are currently valued at $172 billion in assets and had a CAD$49.69 billion fiscal revenue year in 2021. In the same year, they also clocked in a net income of CAD$16.05 billion.
The company has a 27- year dividend growth streak, a dividend yield of 1.56%, a forward dividend yield of 1.58%, and a dividend payout ratio of 22%.
Constellation Software Inc
Constellation Software (TSX: CSU) is a diversified software company founded by mark Leonard, a venture capitalist, in 1996. It’s based in Toronto, Canada.
It is one of the only technology companies to be considered a blue chip stock on the Toronto stock exchange.
Over the past decade, the company clocked in a 2200% share price increase.
Their stock currently does not pay out a dividend as they prefer to use those resources to fuel acquisitions.
The company has been very effective at establishing synergies with companies they acquire, which is the reason for its continued successful growth.
These benefits do come at a cost, one some investors are willing to oblige given the company’s performance, and that is the fact that the company is run on the full trust of its management.
There are no quarterly conference calls, only annual letters to shareholders.
So there is no constant back and forth between investors and management on what the company is up to, but the results are so satisfactory that most shareholders do not mind.
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Brookfield Asset Management
Brookfield asset management (TSE: BAM.A) counts itself as one of the largest asset management companies in Canada.
The company was founded on 1st August 1997 and is based in Toronto, Canada.
The company has interests in real estate, infrastructure, private Equity, and renewable energy, primarily located in Canada and the USA.
The company is a parent company to other subsidiaries such as Brookfield Renewable Partners and Brookfield Infrastructure Partners
These subsidiaries can be purchased separately for specialized exposure to specific asset classes they manage.
They are currently valued at $93 billion and had a $75 billion fiscal revenue year in 2021.
The company’s stock has a low yield, but the overall return offsets this due to its diversified exposure across different asset classes.
The company has a 10- year dividend growth streak, a dividend yield of 1.39%, a dividend payout ratio of 23.58%, and a forward price-to-earnings ratio of 11.39.
An investor’s primary responsibility is to identify and acquire high-quality stocks. Doing so in a reputable blue-chip company like the one we discussed above is a step in the right direction.
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