Top Canadian stocks to weather COVID-19
I don’t have to tell you it’s been a wild stock market ride of late.
…and with this chart in mind, really folks, who knows how the rest of this year will play out. Your guess is as good as mine!
That said, I do have some thoughts on how you and I might be able to weather this market crisis triggered by COVID-19. And for today’s post, I brought in some additional insights.
Enter Mat Litalien.
Mat holds an MBA, is a Certified Health Executive professional, and is a diverse and respected blogger for Motley Fool, Seeking Alpha and a newer site to the Canadian investing scene Stocktrades.ca. If that wasn’t enough, Mat sits on the Board of Directors of Greater Sudbury Hydro as an independent director.
Instead of carrying on a conversation on Twitter about the top stocks to own in Canada to weather COVID-19 triggered market calamity I thought we’d post our discussion here.
Mat, welcome to the site and thanks for being such a big fan of it. Appreciated.
No problem Mark. Great to be here and I enjoy following your journey and portfolio.
Let’s get right to it Mat.
I happen to own all big 5 banks, two major pipeline stocks (Enbridge and TC Energy), and two major telco stocks (BCE and Telus) for dividend income and long-term growth. What do you think of this small portfolio of dividend paying stocks to help weather this market crisis?
I mean why pick just one right? Go with all the industry leaders!
To be honest, the Big Banks and the individual stocks you mentioned are quite simply best-in-class. They are the industry leaders and some of the best blue-chip stocks in the country. What do I think about this portfolio? You can’t go wrong.
It’s tough for everyone right now, but those whose portfolios are anchored by long-term dividend growers are best positioned to weather the current volatility. Canada’s Big Banks have paid out uninterrupted dividends for more than 100 years. If they cut, then no company is safe from a dividend cut.
I’d like to take this opportunity to make a point about diversification. Some might criticize you for holding all five of the Big Banks, two telecoms and two pipelines. Why not just own one in each industry, right? Not so fast.
Using the banks as an example. If I am ready to add to my Big Bank holdings, I don’t just add to the ones I already have. I look at all six (include National Bank) and then decide which provides the best entry point at that point in time.
For the most part, I view them as interchangeable and throughout history, each have had their periods of outperformance (and underperformance). Same goes for telecoms, and the two pipelines you mentioned.
Mat, I also happen to own Suncor. You can see the majority of my Canadian stock holdings here.
I own Suncor as an integrated oil and gas producer for direct exposure to energy. What are your thoughts and predictions about Suncor in particular and the oil and gas sector in general? Is this a “falling knife”? Should investors buy or just hold within this sector?
Unfortunately, the entire industry is a falling knife. As you may know, I partnered with Stocktrades and launched Stocktrades Premium (no affiliation). I mean, the amount of questions we get about the oil & gas industry is overwhelming. Sadly, it’s not surprising as the industry is being decimated.
No company can survive on $20 a barrel for a prolonged period. In my opinion, there are only two (maybe three) stocks that can effectively weather this downturn. And good news for you – Suncor is one of them.
Aside from also being one of the lowest cost producers, Suncor’s downstream operations – Petro Canada – enables it to weather a prolonged bear market. During the last oil bear market, Suncor was one of the few that remained cash flow positive.
Would I rush out and buy it? No. At this point, I think the entire industry is a hold. If investors do want jump in, I’d stick with one of Suncor, Canadian Natural Resources and Imperial Oil. Even then, dividends are not 100% safe.
Please, please, please don’t go chasing yield and don’t take management at their word.
We’ve seen what happened to stocks like Vermillion Energy which have cratered, cut and suspended the dividend. Bulls pointed to comments made by leadership that the dividend was safe. At that time, Vermillion had a yield around 15% and this was before the price war and COVID-19. It was simply not sustainable and then the price war and COVID-19 gave them an out.
I learned this lesson the hard way with AltaGas, a former Aristocrat. Management consistently re-assured investors that the dividend was safe. Then, out of nowhere the dividend was slashed in the fall of 2018. The warning signs were there, I just didn’t trust my analysis and trusted in management. Lesson learned.
(Full disclosure I also own Suncor – have for years and have not added during this downtrend. I think it may be a longer road to recovery than investors might expect. I’m content however, to hold.)
(Mark – me too. Currently DRIPping a couple of shares every quarter. Learn about the HUGE benefits of DRIPping stocks and ETFs here.)
OK, what’s your take on REITs? CAR.UN and REI.UN, two of Canada’s biggest REITs are taking a beating right now but it seems an outstanding time to buy both. CHP.UN and a few others are actually holding up rather well. Thoughts on this sector for investors? Any particular REITs investors should buy or hold?
I’d agree with that stance. It is a good time to be investing in REITs. They have been some of the hardest hit during this market crash and several are now yielding double digits.
With respect to the sub industries, retail and anything travel dependent (i.e., hotel REITs) are REITs you will want to avoid. We’ve already seen several distribution cuts/suspensions in these areas.
Not all retail REITs are bad. Look for those anchored by grocers, or big names like Canadian Tire and Walmart. Those are the ones I’d be looking at right now.
One of my favourite REITs (which I own) is Northwest Healthcare Properties REIT (NWH.UN). It has an impressive growth profile and is quickly building a global portfolio of medical offices, clinics, hospitals and long-term care homes. The debt-profile is a little high, but the dividend is well covered, and it is now yielding about 9%.
Good stuff. Alright, what other Canadian stocks could help investors weather this market crisis?
Now is not the time to be chasing high-growth, speculative stocks. Stick to defensive industries like utilities, telecoms, railroads and technology. Yes, you read that correctly – tech has been one of the best performing sectors.
As mentioned previously, you can’t go wrong with one of Canada’s Big 3 Telecoms. Likewise with CN Rail or CP Rail. These companies have significant moats that provides them with a considerable competitive advantage.
In the utility space, look for industry leaders that also offer a little growth. Think companies like Fortis and Algonquin Utilities.
Canadian Utilities is one of the best dividend growth stocks in the country. At 48-years and counting, it will be the first Canadian company to achieve Dividend Kind status. It makes an excellent income stock, but it isn’t for me. It has the least attractive growth profile among all utility companies.
I like stocks that offer dividend and earnings growth. A common misconception is that dividend investors sacrifice growth. This isn’t true, you can most certainly find a balance.
Finally, how are you holding up? What are the top-5 Canadian stocks that you own and why in your own portfolio?
I am holding up just fine! The crash itself hasn’t been an issue for me. What bothers me the most? The degree of volatility. Swings of 1%+ used to mean a good or bad day. Now, 3-4% swings are becoming the norm. Hard to invest in such an environment.
You might recognize my top five Canadian stocks:
- Toronto-Dominion Bank
- CN Rail
Why do I own them? Pretty simple. I consider them best-in-class, have a considerable moat, a strong commitment to the dividend and are well-positioned to do well regardless of economic condition.
I should also give a notable mention to Open Text. As one of only three technology Canadian Dividend Aristocrats, investors would do well to take a hard look at this one.
I have two portfolios – a dividend growth portfolio and a growth portfolio. I would say my DGI portfolio accounts for approximately 80% of my holdings. In my growth portfolio, Shopify is my top stock.
It has been a beast and is up 35% year to date. Prone to big swings but is positioned to do well as an e-commerce market leader. For those looking to add growth, Shopify is one I’d look at whenever it drops by 20% or more.
Great stuff Mat and thanks for your insights.
Readers, I think when it comes to my portfolio, I’m going to hold the line. I’m going to stay invested in the same Canadian stocks I’ve bought and held for years.
This is why you need to stay invested.
Over time, it is however my hope to own more stocks in the following sectors in the coming years:
- Utility companies – because people will always want to heat and cool their homes, enjoy electricity, use the internet and their cell phones; and enjoy clean water.
- Healthcare companies – because people will always strive for (or least want to have) health.
Beyond that, nothing really changes, at least I hope not…
A big thanks to Mat for his time and insights today. Check him out on Twitter, he’s a great investing follow @matlitalien. I hope to have him back on the site soon.
What stocks or sectors do you believe could weather COVID-19? What stocks in Canada? What stocks in the U.S. for that matter? Thoughts?
Thanks for your readership.
Mark – what Canadian div ETFs have averaged over 8% annual dividend growth in the past 5-10 years? I tried looking this up but can’t find data on it.
Dividend ETFs? Hummm, not sure Tom. I’m not sure anything meets that criteria but some individual stocks might!
Always a great pleasure to read your posts, Mark and other contributors. My best Canadian stocks to weather the covic-19 include Cargojet, Brookfield renewables, utilities stocks like Boralex, Fortis, Alqonquin, telemedicine services like Cloudmd, Well health technologies. So far, I am very happy with their returns.
A side question and hope you don’t mind me asking you, Mark. I have previously asked you a few questions on various topics to which you answered with full of wisdom and in-depth knowledge, including referenced links to other sources. My computer, unfortunately, crashed recently and I cannot retrieve your answers. Is there a way as to how I can retrieve them? I would very much appreciate if you can show me how to retrieve my previous questions and your valuable answers with the links you provided. Are they achieved somewhere in your database?
Thanks as always. Stay well and healthy during this pandemic.
Thanks for your list Ken. I’m also a big fan of Brookfield renewables (BEPC) and BIPC as well. I’ve owned those stocks for many years now.
I also own FTS, AQN and I’m very likely to “get in” on WELL and/or CloudMD as well. I could see the latter two being very, very important long-term.
Sorry to hear about your computer but yes, I can send you some “approved” comments. You probably have a dozen on my site. With your permission I will send you those comments in the coming days to your email address? Let me know if that doesn’t work for you.
I appreciate the kind words!
Correction on my current growth
Emera (held from before Covid +7,566.55 or +31.48%)
CAE (purchased at about 17/share (45%? of precovid prices) +5,593.97 (+27.05%) (in a week or more)
I share this because I think others should know about these great Canadian companies ( and yes i do own shares to be transparent)
I am new here to this site it’s great to see some Canadian peers out there!
I had Enbridge Stocks but decided to sell them all (my particular holdings were already down by $1,000 already) to jump on to CAE (The Canadian company that trains civilian and military pilots, (yes training still happens when airlines don’t do well, they are regulated to continuously train) and also does health simulation tech (little fake people to simulate patients for nursing students/staff).
After I purchased CAE, Trudeau mentioned using CAE as one of three companies to manufacture ventilators. 10,000 for each company. So far, CAE is hovering around $21 bucks but they are down from pre-covid prices of $37-$40 pers stock. So basically HALF or 50% discounted.
A solid company, with a long history (since 1950’s https://www.cae.com/about-cae/history ) plus some dividends (a bit low at .11/share/quarter (.44/year?) but existing at least.
After CAE returns to their pre-covid prices, I am going to sell them all and move it all over to Nova Scotia solid utility company Emera (EMA) for the long haul with .61/share/quarter for a total annual Dividend I think of approx $2.45/share/year?. (http://investors.emera.com/Dividend-Payment-History/Index?KeyGenPage=205189)
So far both of my investments of Emera (held before Covid) and now CAE purchased after COVID at 17.00 / share (now up to 21 and hopefully returning to pre-covid 40 /share) are up approximately $6,000 and $7,000 so far..
I know there are possibly more lows to come.. but going to hold and and ride it out! Thing will return for CAE (the Coke-a-Cola) of the tech world in my own words 🙂
I’m a big fan of EMA. Own a bunch and DRIP > x4 shares.
As for CAE some analysts love that stock and think it could rock in the coming years post-COVID-19. They recently suspended their dividend and share buybacks. Smart move really.
Great post. I will do a link to it for my readers next week as I am sure they will like it also.
Great stuff Susan and thanks for being a dedicated follower of the site.
How are you doing? Buying anything of late or just rolling in money with your dividends? 🙂
Kidding aside, all the best to you during this calamity.
What do you prefer CNR or CP?
I like the size of the CNR network over CP personally.
Thanks Mark for putting together this useful information. By eliminating debt (student loan in two years, cars in 3 years, and mortgage in 12 years) I was able to save aggressively for retirement. Having a Defined benefit retirement plan, and a small home side business, and the current economic conditions to take advantage of, has also helped.
Excellent to hear Raj. It sounds like things are really coming together for you. Congrats and keep it up 🙂
Check out ZWU for utilities, and HTA for tech. Good income and diversification. Good etfs for the auto pilot portion of the portfolio.
Those are interesting ETFs. I have looked at HTA in the past. Higher MER than I would like but DRIP eligible inside RRSP/RRIF/RESP/TFSA.
Do you own any tech directly Peter?
So glad I came across this, I liquidated my entire portfolio after Super Bowl, and have been sitting on cash, I will renter the market and develop a dividend portfolio, I’ll be retired at 50, seven years from now.
A strong dividend portfolio can make a big difference in retirement. Retired at 50…good for you!
That would be very impressive Raj, retired at 50! I wish you continued success!
I have all of Mat’s top 5 in my portfolio. Thanks for this interview.
Glad you liked it!
Great interview! Love his advice.
I agree with him except for enbridge. It seems that dpr cant cover eps and cashflow is negative. I agree that suncor can be a hold but I may exit the oil sector eventually.
I have 4 out of his top 5 though.
Also there is consumer staple like metro (mru) that is doing well.
I wouldn’t mind owning some grocery store stocks myself. $L and $MRU are on my list 🙂
Stay well Rn!
You know what they say about great minds!
Happy you enjoyed it!
Great interview Mark & Mat, I thoroughly enjoyed the interview.
Great Tawcan. Stay well!
Thanks Bob…glad you enjoyed it!
I am reader of your article and taking advise. I am at 56 now and my biggest aim is to create investment income for retirement. Due to the current down turn, all my RRSP and TSFA is down as well. But I have some good amount of cash and hold for income property (20% Down)
Same time like grab some good equity such as Banks and Energy stocks. What is your advise going forward for me real estate or Equity market ? ( lets say $ 100K)
Thank you kindly.
I hear ya Nitin re: things are down. Having cash on hand is smart.
Personally, as per the article here, I’m buying more utilities and U.S. healthcare stocks over time.
That’s just me since cell phones, internet, heating and cooling are essential modern services we cannot live without. Healthcare is also essential.
I wish I could tell you if real estate or equity markets would be better but if I had to guess, long-term, stock markets should perform better than real estate in the coming decades. I wouldn’t think real estate could increase by 7% annualized but you never know!
Hi guys. Great stuff. Big fan of utility stocks for good times and tough times. I was just digging into the 6 I own recently and happy I own them for current dividend income, dividend growth and share price appreciation in the long run. My triple play of investing. Tom
Great stuff Tom. Is your portfolio down a significant part since you are also from the U.S. and I know you hold U.S. assets?
Also, are you thinking of buying any more CDN stocks in particular?
What about these 10 stocks?
TELUS Corp T.TO
Power Corporation of Canada POW.TO
Algonquin Power & Utilities Corp AQN.TO
BCE Inc BCE.TO
Northland Power Inc. NPI.TO
Enbridge Inc ENB.TO
Bank of Nova Scotia BNS.TO
Great-West Lifeco Inc GWO.TO
Canadian Imperial Bank of Commerce CM.TO
Restaurant Brands International Inc QSR.TO
In my opinion, you have a solid set of stocks there. I am also long POW but I do wonder if owning GWO is redundant. Since POW is majority shareholder (66%) in GWO? What do you think?
NPI is an under appreciated company with attractive renewable energy assets.
I’ll let Mat chime in Paul but I don’t think you need to own both POW and GWO. I like GWO personally. I own it.
Otherwise I like the list a great deal but you never know with dividends. I mean, look at the O&G sector right now. Crazy. Negative oil. I never would have imagined that. Those telcos should be stars for decades to come.