5 Top Stocks for November 2019

Contributors at Motley Fool Canada (including myself) cooked up a list of 16 top stocks for November 2019. I further reduced it to 5 top stocks that I like not just for this month but for the long term as well.

Four of the 5 stocks pay a dividend, including 3 dividend stocks that offer juicy but safe yields of up to 6.1%. Without further ado, the 5 top stocks are Alimentation Couche-Tard (TSX:ATD.B), Enbridge (TSX:ENB)(NYSE:ENB), Pembina Pipeline (TSX:PPL)(NYSE:PBA), SmartCentres Real Estate Investment Trust (TSX:SRU.UN), and Spin Master (TSX:TOY).

Enbridge and Pembina are both energy infrastructure companies, but Enbridge is markedly larger with an enterprise value of almost CAD$174 billion compared to Pembina’s more than CAD$34 billion. The rest of the stocks are in different spaces and together handily make a pretty diversified and quality portfolio.

Alimentation Couche-Tard for long-term growth

Source: Author – One of Couche-Tard’s Circle K locations in Toronto

Couche-Tard just had a stock split recently. The growth stock has simply been taking a breather and consolidating after running up more than 50% from early 2018.

Couche-Tard is an exemplary M&A growth story. It has successfully acquired about 10,200 stores across 60 deals since 2004. In the period, the stock delivered total returns of 21% per year! 

The company only yields 0.6%, but its payout has shot up at a rocket pace — over 8 years, its dividend has increased at a compound annual growth rate of 27.8%! Its last dividend hike in fiscal Q3 was 25%!

Going forward, as Couche-Tard has matured and heading into its 40th year next year, it’ll be shifting its growth focus from 70% acquisitions and 30% organic in the past to 50% from each. Management still sees growth by acquisition opportunities in the fragmented fuel and convenience industry.

Today, at $39 and change per share, the stock trades at a forward price-to-earnings ratio (P/E) of 18.5, which implies a decent PEG ratio of about 1.6 based on the estimated earnings growth of 10.6-12.3% per year over the next 3-5 years. 

Enbridge offers a safe 6.1% yield and stable growth

Enbridge has worked hard and come a long way after taking on too much debt to acquire Spectra Energy in 2017 and selling off non-core assets to reduce the debt levels.

The stock was also depressed by delays in the Line 3 Replacement project. That said, if Enbridge successfully places the Canadian portion of the project into service as it plans to for this quarter, the stock should shoot up much higher by year end. 

ENB Dividend Yield (TTM) Chart

ENB Dividend Yield (TTM) data by YCharts

Assuming a fair yield of 4.5%, the stock should trade at CAD$65.60 per share. First, the stock needs to break above the CAD$50 resistance, though.

Pembina for income and stable growth

Obviously, I like Pembina. It’s my top pick for November on the Motley Fool Canada website after all. When choosing the idea, I aimed for defensive investing because of the 10-year bull market we’ve been in. 

Pembina pays a monthly dividend which is good for a yield of 5.2%. Moreover, it has had a long history of stable profitability and persistent price appreciation.

Fundamental analysis graph of Pembina cash flow stability and persistent price appreciation
Source: F.A.S.T. Graphs – Pembina cash flow stability and persistent price appreciation

Pembina is also in the midst of acquiring some Kinder Morgan Canada assets as well as the Cochin pipeline in the U.S. If the integration is successful, it should lead to the next leg up for the undervalued dividend stock. After completing the transaction, Pembina also intends to increase the dividend by 5%, which would imply a forward yield of 5.4%.

SmartCentres REIT

SmartCentres REIT is a retail REIT with a high occupancy of 98% across 157 properties in Canada. Its top tenant, Walmart, contributes 25% of its rental income. Canadian Tire, TJX, Loblaw, Lowe’s, and Empire (and their subsidiaries) contribute another 17% to its rental income for a total of 42%.

The REIT is set to grow from intensification opportunities. It has 256 development projects (apartment, office, senior housing, self-storage facility, hotel, condominium, or townhouses) across 94 properties for intensification. Another 63 properties are under review for intensifying potential.

Fundamental analysis graph SmartCentres REIT valuation
Source: F.A.S.T. Graphs – Graph showing SmartCentres REIT valuation

The stock is a fair value today at about CAD$32 per unit. The REIT just hiked its cash distribution by 2.8% and is good for a juicy yield of 5.8%. 

Spin Master for a quick rally through end of 2019?!

Spin Master is easily the riskiest stock of the bunch. It’s in the consumer discretionary sector and it doesn’t pay a dividend. Nonetheless, we discussed why we like the stock as a value play.

Food for thought

There are only so many best stock ideas at any given time (unless a market crash occurs). Are you spreading your capital too thin across too many “best” ideas? At the same time, diversification across quality businesses is needed to reduce the risk of your overall stock portfolio.

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Disclosure: As of writing, we’re long on the TSX: ATD.B, ENB, PPL, and TOY.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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