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October 5, 2020

Top 10 Canadian Blue Chip Stocks You Should Be Looking At

By Dan Kent

October 5, 2020

When investors think of blue chip Canadian stocks, they often think of some of the best Canadian dividend stocks. However, this isn't necessarily the case.

What are Canadian blue chip stocks?

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 high quality 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, and are held for the long term. Investors should make high quality blue-chip stocks their primary focus.

They provide long term 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 growth stocks, as an investment in them often is banking on the growth potential of the company, not its previous results and can have extensive swings in price over the long term.

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, when it comes to the stock market, 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 high quality Canadian blue chip 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.

The full list of Canadian blue chip stocks


Developing a top 10 list when there are so many options here in Canada in terms of blue-chip stocks is hard. As such, we felt we should include a mega list of every stock we'd consider blue-chip here in Canada.

Now, there is no set definition when it comes to being a blue chip stock. However, I'm going to set the bar really high here, considering we're looking for the best of the best, and say they need a minimum market cap of $20 billion.

There's no exceptions in the table below, however interestingly enough we found two companies in the blue-chip research we've done below that have market caps below this level, because we felt the foothold the companies have on the sectors they operate in are big enough they can be defined as a Canadian blue-chip stock.

Because I know what you're really looking for with blue chips, I've decided to include yields as well. Enjoy this table and more importantly the in depth research below!

**Writer Daniel Kent and Mathieu Litalien hold some of the companies on this article, and in the table above**

What are the top 10 blue chip Canadian stocks to buy?

10. Barrick Gold (TSX:ABX)

Top Gold Stocks - #6 Barrick Gold

After a bear market that lasted the better part of the last decade, gold has finally regained its shine. During the last bull market, gold companies were irresponsible and scooped up assets at high prices. This led to record-high debt loads, and once the price of gold crashed, they were ill prepared. This was a factor in a number of defaults, write-downs, and dividend cuts.

Fast forward to today, gold producers are much better prepared. They are leaner and are taking a much more disciplined approach to capital investments. This bodes well for the long-term future of gold stocks regardless of the volatile price of gold.

Barrick (TSX:ABX) is one of the biggest gold stocks in the world, and it has emerged stronger than ever. It is one of the most diversified stocks in the industry and generates considerable cash flow. Furthermore, it has been laser-focused on reducing its debt burden – down by more than 50% over the past handful of years.

The company has one of the biggest mining reserves and is well positioned to grow its production profile over the next decade. The company is making decisions based on $1,200 gold prices, which should insure strong cash flow generation while providing a large margin of safety. It has also returned to dividend growth, a strong sign of confidence by management that the worst is behind them.

All in sustaining costs hover around the $1,000 an ounce level and it is among the best valued in the industry. To further legitimize its valuation, Warren Buffet recently took a $500 million stake in the company. If it’s good enough for Buffet – it’s good enough for us.

5 year dividend adjusted return of ABX vs the TSX:

5 Year Dividend Adjusted Return of ABX vs the TSX

Market Cap: $65.98 billion
Forward P/E: 29.32
Yield: 1.16%
Dividend Growth Streak: 3 years
Payout Ratio (Earnings): 40.67%
Payout Ratio (Free Cash Flows): Premium Members Only
Payout Ratio (Operating Cash Flows): Premium Members Only
1 Yr Div Growth Rate: 41.00%
5 Yr Div Growth Rate: Premium Members Only
Stocktrades Growth Score: Premium Members Only
Stocktrades Dividend Safety Score: Premium Members Only

9. TC Energy (TSX:TRP)

TC Energy

The oil & gas industry has been absolutely decimated. However, there is a slice of the energy sector pie that remains strong, and that is mid-stream dividend paying companies. Whether it be TC Energy (TSX:TRP), Pembina Pipelines, or Enbridge (TSX:ENB) to list some examples, these are companies that transport various commodities. They are less susceptible to damage due to fluctuations in the price of oil.

One of the best in the industry is TC Energy (formerly TransCanada). Thus far in 2020, the company’s share price has only lost 13% of its value and has held up much better than its peers. In the last quarter, the company reminded investors how well insulated the company is against a difficult economic backdrop.

In fact, TC Energy said “despite the challenges brought about by COVID-19, our assets have been largely unimpacted”. It went on to say that its 2020 outlook remained unchanged as 95% of EBITDA is underpinned by regulated assets and/or long-term contracts.

The company has critical infrastructure across North America and it expects to spend $37 billion on growth projects through 2023. The majority of which will be spent on natural gas pipelines.

Further highlighting its resilience, the company re-iterated dividend growth guidance of 8-10% annually through 2021. Post 2021, it expects the dividend to grow at a compound annual growth rate of 6% at the mid-range.

If you are looking for a best-in-class energy company, TC Energy certainly fits the bill. It is trading at cheap valuations, the company’s juicy 5.43% dividend yield is well covered, and it has a robust pipeline of growth projects.

5 year dividend adjusted return of TRP vs the TSX:

5 Year Dividend Adjusted Return of TRP vs the TSX

Market Cap: $52.55 billion
Forward P/E: 13.82
Yield: 5.80%
Dividend Growth Streak: 19 years
Payout Ratio (Earnings): 70.28%
Payout Ratio (Free Cash Flows): Premium Members Only
Payout Ratio (Operating Cash Flows): Premium Members Only
1 Yr Div Growth Rate: 8.70%
5 Yr Div Growth Rate: Premium Members Only
Stocktrades Growth Score: Premium Members Only
Stocktrades Dividend Safety Score: Premium Members Only

8. Canadian Pacific Railroad (TSX:CP)

CP Rail

Railroads are the bellwether for economic activity, and Canadian Pacific Railway (TSX:CP) has made a dramatic move forward.

Pre-2012, the company was 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.

With its operational issues in the rear-view mirror, the railroad has returned to dividend growth. In July, the company extended its dividend-growth streak to five years when it raised the dividend by 15%. It was a notable raise as it was declared at a time in which many other companies either cut or suspended dividends as a result of the pandemic.

Over the course of the streak, it has consistently raised the dividend by double-digits. With July’s raise, CP Rail will once again earn Canadian Dividend Aristocrat status in 2021. This is important as it will be added to funds that track the Aristocrat Index and it will regain credibility among dividend growth investors.

Over the next handful of years, the expectation is for earnings growth in the high single digits. 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. It is also proving to be a strong defensive stock in light of the current pandemic. The company is up 20.35% this year, placing it among the top performing Blue Chip stocks on this list.

5 year dividend adjusted return of CP vs the TSX:

Canadian blue chip stocks

Market Cap: $54.78 billion
Forward P/E: 23.09
Yield: 0.94%
Dividend Growth Streak: 4 years
Payout Ratio (Earnings): 18.58%
Payout Ratio (Free Cash Flows): Premium Members Only
Payout Ratio (Operating Cash Flows): Premium Members Only
1 Yr Div Growth Rate: 25%
5 Yr Div Growth Rate: Premium Members Only
Stocktrades Growth Score: Premium Members Only
Stocktrades Dividend Safety Score: Premium Members Only

7. Constellation Software (TSX:CSU)

Constellation Software

Although it is starting to make headway, the technology sector is still under-represented on the TSX Index. Unlike south of the border where tech makes up almost a quarter of the markets, the sector still accounts for only a single digit (+9%) weighting on the TSX Index. This is up notably from the 3% it accounted for a couple of years ago, yet there are few technology companies that qualify as a true, Blue Chip company.

However, there is one that checks off all the boxes – Constellation Software (TSX:CSU). Constellation is one of the best-managed companies on the TSX Index. Over the past ten years, its stock price has soared by 1,314% and it has one of the best track records in the industry. It pays a modest dividend, but what it lacks in income, it more than makes up for in capital appreciation.

A $10,000 investment in the company 10-years ago would be worth $351,160 today – and this is without commanding some of the crazy valuations of today’s high-growth tech stocks. That is equal to a compound annual growth rate of 47.2%.

Constellation is simply put, the best consolidator in the industry. It has a knack for acquiring companies and seamlessly bringing them into the fold. It is also important to recognize that tech is becoming a defensive play in this new environment. The pandemic has accelerated the shift to technology and Constellation is up by 20.18% in 2020.

It is however, a company that requires full trust in management. It does not hold quarterly conference calls, and only provides an annual letter to shareholders. You are putting your trust in management, and thus far, it has proved to be a winning proposition.

5 year dividend adjusted return of CSU vs the TSX:

Canadian blue chip stocks

Market Cap: $32.38 billion
Forward P/E: 34.42
Yield: 0.34%
Dividend Growth Streak: 0
Payout Ratio (Earnings): 12.84%
Payout Ratio (Free Cash Flows): Premium Members Only
Payout Ratio (Operating Cash Flows): Premium Members Only
1 Yr Div Growth Rate: 0.00%
5 Yr Div Growth Rate: Premium Members Only
Stocktrades Growth Score: Premium Members Only
Stocktrades Dividend Safety Score: Premium Members Only

6. Canadian Apartment Properties REIT (TSX:CAR.UN)

canadian apartment properties reit

You might be thinking, how can a REIT make a list of Blue Chip stocks in light of the current pandemic? Let us explain. Although the sector as a whole is under pressure, there are certain industries that are more stable than others – that includes those that operate multi-unit residential properties.

Although there are better performing names in this area, Canadian Apartment Properties (CAP) REIT (TSX:CAR.UN) provides excellent value here. It has a suite of affordable rent portfolios that is proving to be quite resilient.

CAP REIT is also in strong financial shape. It has a debt-to-gross book value of only 36% (a rate below 50% is considered strong), one of the lowest in the industry. Furthermore, the company’s 2.98% dividend yield is well covered, accounting for only 73% of adjusted funds from operations. Once again, this is in the top tier of TSX-listed REITs.

The company is currently trading at a 17% discount to cash flow value, and a 14% discount to net asset value. In June, the company was added to the S&P/TSX 60 Composite Index which tracks the largest companies by market cap on the TSX Index. In fact, it is the only REIT among the Index constituents.

Although it does carry greater risk than most on this list, the risk-to-reward proposition is attractive. Now is the perfect time to start accumulating Canada’s largest residential REIT.

5 year dividend adjusted return of CAR.UN vs the TSX:

Canadian blue chip stocks

Market Cap: $8.01 billion
Forward P/E: 20.76
Yield: 2.96%
Dividend Growth Streak: 8
Payout Ratio (Earnings): 62.61%
Payout Ratio (Free Cash Flows): Premium Members Only
Payout Ratio (Operating Cash Flows): Premium Members Only
1 Yr Div Growth Rate: 4.43%
5 Yr Div Growth Rate: Premium Members Only
Stocktrades Growth Score: Premium Members Only
Stocktrades Dividend Safety Score: Premium Members Only

5. BCE Inc (TSX:BCE)

BCE Logo

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, and its sheer size.

The company's strength is product innovation, and providing the fastest network possible to Canadians. Its success in this department is reflected with a customer base that exceeds 9 million subscribers.

The Canadian telecom industry is somewhat of a regulated monopoly. The three big players dominate the industry and the regulations make this unlikely to change anytime soon.

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 one company that is having some success at breaking through is Shaw Communications (TSX:SJR.B), but they are still a long ways away from disrupting the Big Three.

BCE is one of the best income stocks in the country, with a dividend yield of approximately 6% and an 11-year dividend growth streak. Although it may seem like a short streak, the streak was interrupted by an impending purchase by the Ontario Teacher’s plan that ultimately fell through.

With a market capitalization of ~$50 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.

5 year dividend adjusted return of BCE vs the TSX:

Canadian blue chip stocks

Market Cap: $50.14 billion
Forward P/E: 18.87
Yield: 6.01%
Dividend Growth Streak: 11
Payout Ratio (Earnings): 103.42%
Payout Ratio (Free Cash Flows): Premium Members Only
Payout Ratio (Operating Cash Flows): Premium Members Only
1 Yr Div Growth Rate: 5.00%
5 Yr Div Growth Rate: Premium Members Only
Stocktrades Growth Score: Premium Members Only
Stocktrades Dividend Safety Score: Premium Members Only

4. Metro (TSX:MRU)

metro

A quick look over the sectors in 2020 and you will find only one that has consistently been among the top performers – consumer staples. Not surprisingly, as the economy shut down, we still needed our basic necessities and this sector remained strong, particular among grocery stocks.

One of the country’s best is Metro (TSX:MRU). Year to date, the company’s stock price is up by 19.46% and a quick look at its long term chart will tell you everything you need to know. Metro is a pillar of consistency. Nothing flashy here, just consistent and reliable growth.

The company’s low yield (1.41%) may be a turn-off for some, but it is one of the best dividend growth stocks in the country. Metro’s 25-year dividend growth streak is tied for the 7th-longest streak in the country and it is one of the few in the leading 10 to have consistently raised by double-digits over the past three, five, and ten-year periods.

Some provinces are officially in the second wave of the pandemic, and Metro is once again well positioned to benefit. Given the possibility of a second shutdown, or even a third wave, consumers are likely to begin restocking their own shelves. We’ve already seen signs of increased necessity buying, and this will drive traffic to Metro locations country-wide.

Even if a second shutdown doesn’t materialize, Metro has a proven history of delivering consistent growth. It is therefore, one of the most defensive Blue Chips on the TSX Index.

5 year dividend adjusted return of MRU vs the TSX:

Canadian blue chip stocks

Market Cap: $16.02 billion
Forward P/E: 18.44
Yield: 1.41%
Dividend Growth Streak: 25
Payout Ratio (Earnings): 28.21%
Payout Ratio (Free Cash Flows): Premium Members Only
Payout Ratio (Operating Cash Flows): Premium Members Only
1 Yr Div Growth Rate: 11.11%
5 Yr Div Growth Rate: Premium Members Only
Stocktrades Growth Score: Premium Members Only
Stocktrades Dividend Safety Score: Premium Members Only

3. Canadian National Railway (TSX:CNR)

CN Rail

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 kilometers of track, CN Rail is engaged in the transportation of forest, grain, coal, sulfur, fertilizer, automotive parts, and more.

CN Rail is a company that is growing the dividend at an impressive pace. It has a dividend growth streak of 24 years and a five-year dividend growth rate of 16.54%, the stock's consistent rise in price has resulted in a low yield (1.64%).

Don’t fret. The company may lack in yield, but it makes up for that in capital appreciation. Over the past decade, it has returned more than 500% to investors with a CAGR of 20.34%. This type of performance out of a large cap, Blue Chip company is quite impressive. It is also ~500 basis points higher than CP Rail. Simply put, it has been the best performing railroad in the country.

Further to CP Rail’s performance, CN Rail has been equally as reliable during this pandemic. Year to date, the company’s stock price is up by 21.06% and it has proven to be highly nimble. Despite its size, CN Rail has been able to adapt, re-route and focus operations on those customers that ran essential services.

The company’s handling of the pandemic has been rightfully lauded by industry experts. Investors are in good hands with CN Rail.

5 year dividend adjusted return of CNR vs the TSX:

Canadian blue chip stocks

Market Cap: $100.98 billion
Forward P/E: 26.54
Yield: 1.62%
Dividend Growth Streak: 24
Payout Ratio (Earnings): 42.51%
Payout Ratio (Free Cash Flows): Premium Members Only
Payout Ratio (Operating Cash Flows): Premium Members Only
1 Yr Div Growth Rate: 18.13%
5 Yr Div Growth Rate: Premium Members Only
Stocktrades Growth Score: Premium Members Only
Stocktrades Dividend Safety Score: Premium Members Only

2. Royal Bank of Canada (TSX:RY)

Royal Bank

The Royal Bank of Canada (TSX:RY) is probably one of the most popular stocks here in Canada. There is a reason the stock is one of the top holdings in nearly every single Canadian bank ETF.

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 4.61% and an eight-year dividend growth streak. The dividend is also growing at an impressive pace, with a five-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.

Although banks are struggling during this pandemic, a similar theme is occurring – reliable dividends. While many countries are asking banks to cut the dividend, or some are being forced to as a result of the pandemic, Canada’s big banks remain among the safest income stocks on the planet.

The Feds have asked the banks not to raise dividends, a small and reasonable ask considering the current environment. Once we get to the other side of this pandemic, the banks will surely return to dividend growth.

You can't go wrong with any of the Big 5 banks here in Canada. They are all excellent Canadian Blue Chip stocks. However, Royal Bank is certainly one of the best.

5 year dividend adjusted return of RY vs the TSX:

Canadian blue chip stocks

Market Cap: $134.20 billion
Forward P/E: 12.51
Yield: 4.58%
Dividend Growth Streak: 9
Payout Ratio (Earnings): 54.54%
Payout Ratio (Free Cash Flows): Premium Members Only
Payout Ratio (Operating Cash Flows): Premium Members Only
1 Yr Div Growth Rate: 8.00%
5 Yr Div Growth Rate: Premium Members Only
Stocktrades Growth Score: Premium Members Only
Stocktrades Dividend Safety Score: Premium Members Only

1. Fortis (TSX:FTS)

Fortis

You won't find a Blue Chip stock list that doesn't contain Fortis (TSX:FTS) – at least you shouldn’t. If you do, maybe keep looking. This Canadian company is among the top 15 utilities 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 – 46 if you include the company just announced its annual raise on September 23. This has cemented the company as one of the best investments in Canada and definitely worthy of its blue-chip title.

Yielding 3.76%, the company has grown dividends at a 5 year rate of 6% with a payout ratio of only 48%. The good news? Fortis recently extended its targeted annual dividend growth rate of 6% to 2025. That means, investors can expect a 6% annual raise to the dividend in each of the next five years. That type of transparency and reliability is rare.

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 giant's stock price over the last couple of years. Furthermore, interest rates have since cratered again, and the Feds aren’t likely to raise again for some time.

Fortis’ stock is as close to a set and forget investment as you can get.

Charts provided by StockRover. Check out Stockrover Here!

5 year dividend adjusted return of FTS vs the TSX:

Canadian blue chip stocks

Market Cap: $25.51 billion
Forward P/E: 20.99
Yield: 3.68%
Dividend Growth Streak: 46
Payout Ratio (Earnings): 75.79%
Payout Ratio (Free Cash Flows): Premium Members Only
Payout Ratio (Operating Cash Flows): Premium Members Only
1 Yr Div Growth Rate: 5.94%
5 Yr Div Growth Rate: Premium Members Only
Stocktrades Growth Score: Premium Members Only
Stocktrades Dividend Safety Score: Premium Members Only

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Dan Kent


An active dividend and growth investor, Dan has been involved with the website since its inception. Dan is primarily a researcher and writer here at Stocktrades.ca, and his pieces have numerous mentions on the Globe and Mail, Forbes, Winnipeg Free Press, and other high authority financial websites. He has become an authority figure in the Canadian finance niche, primarily due to his attention to detail and overall dedication to achieving the highest returns on his investments. Investing on his own since he was 19 years old, Dan has compiled the experience and knowledge needed to be successful in the world of self-directed investing, and is always happy to bring that knowledge to Stocktrades.ca readers and any other publications that give him the opportunity to write. Dan manages his TFSA, RRSPs and a LIRA at Questrade, and has compiled a real estate portfolio of his primary residence and 2 rental properties, all before his 30th birthday.

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