Ah, forever stocks! I love them. Here I present nine stocks I include in my Canadian Forever Stock Selection and briefly explain why. A forever stock is one I’d buy for the long haul, 10+ years. It offers reliable growth and is so solid and resilient that I can forget about it and sleep soundly.
Let’s be clear, my selections aren’t based on timing; I’m not saying that they are great buys right now, but rather that I’d buy any of them and that, if I couldn’t monitor them quarterly as I do, I wouldn’t worry.
Forever stocks share several of these qualities:
- Market leaders
- Economies of scale
- Predictable cash flow
- Stable and/or sticky business model
- Essential products / services
- Multiple growth vectors
- Long dividend growth history
This list is partial; clearly, there are other contenders that could be on it. I have covered this part more in-depth on The Dividend Guy Blog.
Telus (T.TO / TU) – Communication Services
The competition chases media, while Telus pursues technology improvements, like AI use in healthcare and agriculture. With our aging population, healthcare technology will be in high demand. The same is true for farmers optimizing their land use while facing the effects of climate change among other headwinds. Strong in the wireless industry. Telus uses its extra cash to diversify. Customers can cut cable, but not healthcare or food.
While there are concerns about its debt level, I expect it is a short-term problem; Telus has recently increased cash flow from operations, and its massive investments in wireless infrastructure and its other growth projects will generate more cash flow.
Magna International (MG.TO / MGA) – Consumer Discretionary
I hesitated over Canadian Tire, but the future of retail isn’t as evident as the need for transportation. Whether our cars run on fuel, electricity, or levitate, Magna will manufacture parts for car makers. MG’ size and scale enables it to partner-up, design, and produce parts for the largest car markers. Having joint business with manufacturers makes MG essential to the auto industry.
Magna doesn’t look like a winner right now with its squeezed margins since the chain supply disruptions started in 2021. I believe it’s a winner for the long run due to its deep connection with major car makers.
Alimentation Couche-Tard (ATD.TO) – Consumer Staples
Grocers could be good choices, but I worry about their growth potential in light of the competition and pressure their margins will face in the coming years. Canada’s low population density makes it difficult to increase revenue with new stores and maintain margin; transportation cost eats some of the revenue increases.
Alimentation Couche-Tard has a unique business model and an uncanny ability to adapt. Ten years ago, ATD was a growth by acquisition machine counting on fuel sales to boost income. Its management team never writes cheques carelessly, preferring to walk away from bad deals. A decade ago, it bought Statoil Fuel & Retail. This allowed ATD to gain insight into the behavior of electrical vehicle owners, convincing it of its network’s suitability to an electrifying world.
ATD shows a great mix of organic growth and acquisitions. What’s not to love?
Canadian Natural Resources (CNQ.TO / CNQ) – Energy
A while back, I would have selected Enbridge or TC Energy because pipelines are amazing; they get paid no matter what happens in the markets. However, with rising alarm about fossil fuel emissions, regulators, inflation, labor shortage and high interest rates, trouble is brewing.
One company truly impressed during the 2020 oil crash, Canadian National Resources. While Suncor cut its dividend under these dark skies, CNQ increased theirs!
CNQ proved its long-held claim: it has the most diversified and durable energy portfolio. With this unique asset mix, it manages production according to changes in commodity prices, like having unlimited food you sell when prices are at their highest and keep for yourself when prices are down.
With over 20 years of consecutive dividend growth, even during the toughest times in the industry, CNQ deserves praise, and maybe a place in our portfolio.
For more great Canadian stock ideas, download our Rock Stars list, updated monthly!
Canadian National Railway (CNR.TO) – Industrials
Many candidates in this sector, but nothing as boring and steady as railroads. I chose CNR over CP due to its long dividend growth history. CNR is the largest Canadian railroad operator, nobody can replicate its asset base. This barrier to entry is impenetrable and the need to transport goods won’t slow down. Canada is known for its resources, CNR is known to be able to move them. A match made in heaven.
Constellation Software (CSU.TO) – Information Technology
In the tiny list of Canadian tech companies with robust growth, Constellation Software isn’t showing any signs of slowing down. OK, not a dividend payer, yielding 0.2% without recent increases; I picked it for its impressive list of acquisitions. CSU manages hundreds of niche software companies, as its well-chosen name reflects! How it approaches acquisitions and selects targets is remarkable. As CSU itself puts it: “We buy Good vertical market software companies. Now and again, we buy an Exceptional company.”
CCL Industries (CCL.B.TO) – Materials
This one should get more attention! CCL is the world’s largest producer of pressure-sensitive and specialty extruded film materials. We’re talking about labels and foil tapes (think post-its on steroids). I’ve recently posted a detailed article covering CCL; read it here.
Granite (GRT.UN.TO) – Real Estate
One of the first industrial REITs in specialized industrial properties and high tech, Granite has an impressive long term development plan. After being spun-off by Magna International in 2003, Granite diversified. While Magna remains its largest tenant, GRT focuses mostly on distribution and e-commerce properties, where Amazon is its largest tenant.
With a low FFO payout ratio, shareholders enjoy a 3.5%+ yield that should grow to match or beat inflation . Also, it’s a rare REIT showing AFFO/unit growth while issuing new units.
Utilities – Fortis (FTS.TO / FTS)
Among several great utilities in Canada, Fortis is the most boring and stable. Its impressive portfolio includes 10 regulated utility assets focused on energy transmission and distribution, mainly electric and gas. Fortis manages them with impeccable results quarter after quarter. Tight management limits operating costs growth, while FTS passes most of the inflation to customers. Dividend growth for 49 consecutive years, no hints of slowing down (dividend growth projected at 6%) prove FTS is an all-weather company.