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 2020. The list is dominated by energy, financial and railroad companies, but this is to be expected as they take up a large majority of the TSX.
12. Canadian Pacific Railroad (TSX:CP)
Railroads are the bellwether for economic activity, and Canadian Pacific Railway (TSX:CP) has made a dramatic move forward. Pre-2012, the company has having significant operational issues which led to many tough decisions. The turnaround has been nothing short of astounding.
Over the past five years, it has outperformed its larger peer (CN Rail) and it transformed itself from the lowest-margin railroad, to the highest of all publicly listed North American railroads. Who led the turnaround? Railroad legend Hunter Harrison. Who is leading the company into the future? Keith Creel, long-time partner of the legend himself. In other words, the company is in great hands and investors can expect one of the best run companies in the sector.
With its operational issues in the rear-view mirror, the railroad has returned to dividend growth. It has a four-year dividend growth streak in which it has averaged 20% dividend growth. A low payout ratio in the high teens all but guarantees the company will become a Canadian Dividend Aristocrat in 2021.
Over the next couple of years, the expectation is for earnings growth in the low teens. Looking further out, analysts expect the company to grow earnings by approximately 8% annually over the next five years. Considering the company has missed on quarterly earnings only once in the past three years, we consider this the floor with respect to the company’s upside.
There isn’t much not to like about CP Rail. It forms a duopoly with CN Rail, and rail is the primary means of transporting goods across the country.
11. 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.
10. RioCan (TSX:REI.UN)
We felt that at least one Canadian REIT deserved blue-chip status, and that would be RioCan REIT (TSX:REI.UN). RioCan is Canada’s largest REIT and the company owns over 225 properties and a portfolio that works out to be more than 39 million square feet.
The company is featured prominently in many REIT ETFs and is currently undergoing a transformation to diversify away from its retail heavy property makeup. The company is aggressively converting many of its retail only properties into mix use.
RioCans largest project as of writing is The Well. Located in downtown Toronto, the property will include over 11 million square feet in office space, just over 1800 residential units and half a million square feet of food and retail services.
The company pays a solid dividend, which is an absolute must for most investors looking at Canadian blue-chip stocks. With a yield of 5.26% and a monthly payout, RioCan can supply income focused investors with strong cash flows. The company’s dividend accounts for just over 80% of funds from operations as well, signaling a very healthy dividend.
9. Telus (TSX:T)
When you look at the definition of a Blue-Chip stock, you see terms such as reliable, financially stable, dependable earnings and market leader. Considering this, it is hard not to include a company like Telus (TSX:T) which forms an oligopoly with BCE and Rogers in the telecom industry.
With a market cap in excess of $30 billion, it is one of the largest companies on the TSX. It has a strangle hold on wireless in Western Canada and has provided stable and reliable returns for years.
Telus has quietly built-out an impressive fiber-to-the-home (FTTH) network, which cannot be understated. For years, it was known to have an inferior wireline product. But its new FTTH network has by all accounts surpassed its primary competitor (Shaw) in terms of quality. As such, the expectation is for Telus to quickly gain market share in the wireline division. Of note, 5G is expected to require significant fiber capacity and Telus’ FTTH network has it well positioned to be a 5G leader.
Telus has a 15-year dividend growth streak, which is the longest such streak in the industry. It has also averaged 9% dividend growth over the past 10-years and has a targeted dividend growth rate between 7-10%. Once again, these are tops among its peers. It is a trend that is expected to continue as it has the lowest payout ratio of the trio.
Although industry growth is expected to slow in the coming years, Telus is still expected to grow earnings in the mid-to-high single digits. Combined with a healthy yield above 4.5%, Telus is the perfect buy-and-forget stock.
8. Pembina Pipeline (TSX:PPL)
There is no questioning that Pembina Pipeline (TSX:PPL) is one of the best Canadian blue chip stocks there are today. The company is very similar to Enbridge, another stock on this list, in that it is a pipeline company. It offers transportation and midstream services for the energy industry all over North America.
The company primarily operates in North Dakota, Alberta, Saskatchewan and British Columbia. With over 10,000 km of pipeline, the company has a huge presence in the midstream oil and gas industry.
Pembina pays a very lucrative dividend of around 4.82% and also pays that dividend on a monthly basis. Add this to the company’s compound annual growth rate of 5.68% over the last half decade, and you have a pipeline stock that has paid consistent double digit returns. With a dividend growth streak of 8 years, it doesn’t quite have the length other blue chip stocks on this list due, but we don’t see a dividend cut from Pembina for the foreseeable future. The company’spayout ratio is 74%, with the dividend making up only 48% of operating cash flows.
The company is also duel-listed, meaning you can own either the TSX or NYSE ticker. As most other Canadian blue chips, Pembina currently trades at a premium. The company has a forward price to earnings of nearly 21 and a price to book of around 2.19.
7. Suncor Energy (TSX:SU)
Despite the recent oil & gas bear market, you can’t talk TSX Blue Chip stocks without including an integrated oil major and there is none more reliable than Suncor (TSX:SU). It is widely recognized as the best-in-class oilsands operator. Although renewable energy companies are seen to be the future, oil and gas is going to be sticking around for a while.
The company generates stable cash flows and thanks to its integrated operations, it is less susceptible to the volatility of oil prices. Suncor’s downstream operations acts as a hedge when the price of oil drifts lower. It is in a strong financial position with a net debt to EBITDA of only 1, and it has plenty of organic growth opportunities from several potential oil sands projects.
Suncor is also a Canadian Dividend Aristocrat and owns an impressive 16-year dividend growth streak. Over the past five-years, the company has raised dividends by an average of 14.6% annually. This is a great example of how this integrated major’s stable cash flows supports a growing and sustainable dividend. The best part? The company’s payout ratio is only 46% of earnings and the expectation is for the company to have a cash buildup of approximately $2.5 billion by the end of 2020. As such, it has plenty of room to grow.
Recognizing its current undervaluation, the company is also buying back shares at an impressive pace. It recently announced plans to repurchase for cancellation an additional $500 million outstanding shares. This is up from $2 billion previously. As of writing, the company has already repurchased $1.74 billion of its common shares and the new program is extended through February of 2020.
6. 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. The stock is also dual-listed, meaning it can be bought on the TSX and NYSE, although we’d suggest using Norbert’s Gambit here in Canada if you plan on buying the U.S. stock.
5. 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.
4. Enbridge (ENB.TO)
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.
3. Royal Bank Of Canada (RY.TO)
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.
2. Toronto Dominion Bank (TSX:TD)
Considering that Financials account for approximately 31% of the TSX, it is not surprising to see more than one of Canada’s Big Banks make the list of the top Blue-Chip companies in the country. Over the past decade, the best performer of the Big Banks has been Toronto-Dominion Bank (TSX:TD).
The company’s diversification south of the border has enabled it to post the highest rates of returns in the sector. Strong U.S. operations is also why analysts expect Toronto-Dominion to also post the highest average earnings growth rates (+7%) over the next five years.
Not only as TD been the best bank for growth, it has also become the best dividend growth stock among its peers. Over the past five-years it has grown dividends by an average of 10% annually, tops among the Big Five. It also has the lowest payout ratio of the group as compared to next year’s earnings (41.9%). As such, TD Bank is likely to maintain a higher than average dividend growth rate.
Worried about a recession? Toronto-Dominion has historically been a more conservative lender. It is focused on less volatile businesses and as such, is better prepared to withstand an economic downturn. It is one of the best-run banks and has one of the highest credit ratings among Canada’s banks. It is therefore not surprising, that the company has always commanded a premium valuation as compared to its peers.
1. Fortis (FTS.TO)
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.