When investors think of blue chip Canadian stocks, they often think of stocks that pay dividends. However, this isn’t necessarily the case.
My definition of a blue chip stock is simply one that has a large market capitalization and is a top company in its industry. Typically I look for stocks that are within the top three in terms of performance in the sector, but industries like the Canadian banking industry can have a multitude of stocks I consider blue chip even if they aren’t a front runner.
Blue chip stocks are often the backbone of an investors portfolio. They provide stability and usually (but not always like I stated above) an excellent dividend. Why is that? Well, a “blue-chip” stock is often well established and has been financially sound for decades. This differs from a growth stock, as an investment in them often is banking on the potential of the company, not its previous results.
An interesting piece of information before we move on to the best blue chips stocks in Canada though. Did you know that the term blue chip is derived from the game of poker? Typically, blue chips held the highest value, and as such were the most important to hold in your stack.
With all that said, here is a list of the top blue chip Canadian stocks you need to be looking at in 2019. For diversity, I’ve left out multiple stocks from similar industries. For example, this list could be made up primarily of Canadian financial companies, but in order to explore the TSX on a broader scale, I’ve only included one.
You won’t find a blue chip stock list that doesn’t contain Fortis (TSX:FTS). And if you do, you should maybe find another list. The Canadian utility company is among the top 15 in North America, and has over 10 utility operations under its belt in Canada, the United States and the Caribbean.
The utility industry is highly regulated, which often leads to consistent cash flows. As the population keeps growing, energy demands will grow right along with it and utility companies are positioned to profit.
Fortis has the second longest dividend growth streak in the country at 45 years. This has cemented the company as one of the best investments in Canada and definitely worthy of its blue-chip title. Yielding 3.27%, the company has grown dividends at a 5 year rate of 6% with a payout ratio of only 48%.
Utility companies rely heavily on debt to finance capital investments. As such, these companies are prone to setbacks when interest rates rise. This is something you need to keep an eye on if you’re looking to invest in a Canadian blue chip stock like Fortis.
However, rising interest rates seemed to have no negative consequences for the utility giants stock price over the last couple of years. In fact, since October of 2018, the stocks price has increased 32.4%. Add a lucrative dividend to the mix, and you have a stock that is as close to a set and forget investment as you can get.
Royal Bank Of Canada (RY.TO)
The Royal Bank of Canada (TSX:RY) is probably one of the most popular stocks here in Canada. The company is a global enterprise, with operations in Canada, the United States and 40 other countries.
The company has been named one of Canada’s most valuable brands for 5 years running, and its reputation is second to none in terms of customer satisfaction. With a market capitalization of nearly $140 billion, Royal Bank is one of the best blue chip stocks to add to your portfolio today. The company’s dividend is strong, with a yield of 4.03% and an 8 year dividend growth streak. Its dividend is growing at an impressive pace, with a 5 year growth rate of over 8%.
The Canadian banking industry is one of the strongest sectors in the country, if not the world. While banks around the world were slashing dividends and closing their doors during the 2008 financial crisis, all of the Canadian banks held strong. Although their share prices fell considerably, recovery was quick and their dividends were never cut.
You can’t go wrong with any of the Big 5 banks here in Canada. I’d label them all as excellent Canadian blue chip stocks. However, I believe RBC to be best in class.
Enbridge (TSX:ENB) is an energy generation, distribution and transportation company with operations in both Canada and the United States. The company has established a strong footing in the Canadian oil sands and natural gas sectors.
Enbridge’s Mainline pipeline covers 70% of the countries pipeline network, and its recent merger with Spectra in 2017 allows the company to diversify revenue generation, as 1/3 will come from natural gas.
Enbridge has a market capitalization of $87 billion, making it one of the largest companies in the country, and is currently tied for 9th in Canada in terms of dividend growth streaks at 23 years. To add to this, it’s fairly rare to see a Canadian blue chip stock increasing dividends at a double digit rate. As of right now, over the last 5 years Enbridge has bumped its dividend payment annually at a rate of 16%, which is phenomenal for a company its size.
To add to a dividend that is growing at a double digit pace, this blue-chip stock has a yield of nearly 6.5%, and is at a price level that hasn’t been seen since 2015 due to the current oil and gas bear market. With its yield as high as it is, you don’t need much appreciation in terms of stock price from this blue chip stock to beat the market average.
Canadian National Railway (CNR.TO)
Canadian National Railway (TSX:CNR) is the largest railway company in Canada, and as such has become a no brainer when referencing blue chip stocks here in Canada. With over 33,000 Kms of track, the company is engaged in the transportation of forest, grain, coal, sulfur, fertilizer, automotive parts and more.
Remember when I referenced at the start of the article that a blue chip stock doesn’t necessarily need an excellent dividend? This would be the case with CN Rail in terms of its yield. Although the company is growing its dividend at an impressive pace, with a dividend growth streak of 23 years and a 5 year dividend growth rate of 16%, the stocks consistent rise in price has left its dividend yield quite low at 1.62%.
Since January of 2016, the stock has returned nearly 75% to investors. So, although its dividend might be a tad low in terms of overall yield, it has more than made up for it in terms of stock appreciation.
Canadian Natural is an industry leader in the transportation sector, and as such is definitely a blue chip stock you want to be looking at today.
BCE Inc (BCE.TO)
BCE Inc (TSX:BCE) is one of the largest telecom companies in the country and is often grouped together with the “Big 3”, being Telus, Rogers and Bell. In terms of blue chip stocks, you can’t really go wrong with any of the three, but what sets BCE apart is its ability to generate new subscribers in a mature market.
The company’s strength is product innovations and providing the fastest network possible to Canadians. Its success in this department is reflected with its customer base that exceeds 9 million subscribers.
The Canadian telecom industry is somewhat of a regulated monopoly so to speak. Canadian’s pay some of the highest phone and television bills out of all the developed countries, and strict regulations make it nearly impossible for new players to try and penetrate the market. The only company I can think of that is having any sort of success in doing so is Shaw Communications (TSX:SJR.B), and they are still a long ways away.
BCE’s dividend is one of the best in the country, with a yield of nearly 5% and a 8 year dividend growth streak. With a market capitalization of nearly $56 billion, the company is one of the largest in the country and is a blue chip stock that has provided consistency and reliability for over a decade.
Alimentation Couche-Tard (ATD.B.TO)
In terms of consumer defensive stocks, I believe Alimentation Couche-Tard (TSX:ATD.B) is best in class, and as such should be defined as a blue chip stock. Consumer defensive stocks provide security during market downturns, as their revenues typically aren’t affected as much as say a consumer cyclical stock.
Couche-Tard is the second largest convenience store operator in the world, and operates under several banners including Mac’s, Circle K and Kangaroo Express. The company is a Canadian Dividend Aristocrat, raising dividends for 9 straight years. Because of its recent surge in terms of price, its yield is essentially non existent at 0.40%. But considering the company has returned nearly 130% to investors over the last 5 years in terms of stock appreciation, you won’t see many people complaining about this blue chip stock in terms of returns.
The company is very aggressive in terms of acquisitions, and with its ability to synergize those acquisitions it has increased its global store count to over 15,000. With a market cap of nearly $45 billion, Couche-Tard is second to none in terms of convenience store operators here in Canada, and possibly the world. With nearly $1.5 billion in cash flows, look for the company to continue to add to its store count through aggressive growth and acquisitions.