Category Archives: Stock Portfolio Building

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.

Read More

How to Create a Passive Income Portfolio

To create a passive income portfolio, you can invest in bonds or stocks that generate interest or dividend income without you having to lift a finger. I prefer to invest in stocks which have outperformed bonds in the long run.

I also like the concept of investing in stocks because I’m owning stakes in businesses and benefiting from their profits (although I also take on their risks). This is markedly different from purchasing bonds for which you’re lending your money to governments or corporations for interests in return.

In fact, dividend investing is my favorite way to generate passive income. There are so many safe dividend stocks to choose from. Even in a booming stock market like today, you can still find quality businesses at good valuations.

Here’s how to create a passive dividend income portfolio:

  • Buy stocks that offer safe dividends at good valuations
  • Diversify but don’t di-worsify
  • Aim for a low-maintenance portfolio that’s replicable, scalable, and can be largely automated
grow a money tree

Buy stocks that offer safe dividends

The U.S. and Canadian stock markets offer yields of 1.8% and 2.8%, respectively. There are plenty of safe dividend stocks that offer higher yields of about 3-6%.

However, typically, the higher the yield of a stock, the slower its dividend growth will be. (Sometimes, high yielders don’t increase their dividends.) Similarly, low yield stocks tend to increase their dividends faster. Typically, dividend growth stocks are safer and better than stocks that simply maintain their dividends.

Buy stocks at good valuations to protect your invested capital and maximize your gains.

Here are a few examples.

A high yield example

NorthWest Healthcare Properties REIT (TSX:NWH.UN) owns a high quality portfolio of medical office buildings and hospital properties in major markets in Canada, Brazil, Germany, The Netherlands, Australia, and New Zealand.

The healthcare REIT generates stable cash flows from having a high occupancy of about 96% and a weighted average lease expiry of 13 years. Additionally, it gets organic growth from having more than 70% of its net operating income indexed to inflation. It also has CAD$370 million projects in its development pipeline that’ll also add to growth.

Read More

How To Choose Better Stocks

Consider investing in the best stocks from an industry you’re interested in, instead of buying more than two from the same industry, as there usually aren’t that many great investing ideas.

If you’re a low-risk, conservative investor, you should consider focusing your investing dollars on stocks that:

  • have stable earnings or cash flow generation,
  • have an investment-grade credit rating or stocks that have little to no debt and are not rated, like Facebook (FB),
  • have weighted average interest rates of about 4% or lower,
  • don’t dilute shareholders,
  • have little short interests, and
  • are trading reasonable valuations.

Stocks from the same industries are subject to the same operating environments/challenges and risks. So, it makes sense to compare stocks from the same industries. Additionally, you’d generally want to compare with peers of similar size (i.e., large cap to large cap and small cap to small cap).

In general, you don’t want to hold too many stocks in the same industry because such stocks tend to move in tandem, and you want to reduce risk through diversification. Besides, why not choose the best stock from an industry you’re interested in? The aim is to lower your risk for satisfactory returns.

Read More