4 Canadian stocks to diversify your portfolio
Diversification is key to mitigating risk and achieving your financial goals.
A very Happy, Prosperous and Wonderful New Year to you!
May this year bring more dividends and total returns to your investment portfolio.
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All too often I see portfolios of Canadian investors heavily concentrated into Energy, oil and gas, financials and utility stocks.
Many portfolios are a concentrated as much as 50% into 1 sector alone.
Investors feel if they invest in some Big Banks, a few oil and gas stocks and couple of utilities and telecom companies they are well diversified!
But if you take a close look at the portfolio, this is what majority it looks like:
NOTE: This is just a sample, but most Canadian portfolios look similar.
Sector wise allocation:
Financials - 35%, Energy - 30%, Utilities - 15%, Telecommunications - 20%
This is definitely NOT a well diversified stock portfolio!
Concentrating 35% of your investments into a single industry is not a good idea, unless you work in that industry and know when to get out or trim your positions before the business cycle goes down.
If an industry goes into a down cycle, all stocks from the sector are painted by the same brush and go down simultaneously. This could lead to a major portfolio level drawdown.
This brings us to the topic of this article.
How can Canadian investors diversify away from the industries that are the primary engines of its economy and still invest in home grown businesses?
4 Canadian stocks you can buy this year to de-risk and diversify your portfolio.
There are many Canadian businesses from sectors other than financials, oil and gas, utilities and telecom that you can consider adding to your portfolios.
Not only are these businesses easy to understand, they also generate best in class profits, cash flows and most pay growing dividends!
1. Alimentation Couche-Tard ($ATD)
Alimentation Couche-Tard Inc operates a network of convenience stores across North America, Ireland, Scandinavia, Poland, the Baltics, and Russia.
The company primarily generates income through the sale of tobacco products, groceries, beverages, fresh food, quick service restaurants, car wash services, other retail products and services, road transportation fuel, stationary energy, marine fuel, and chemicals.
In addition, the company operates more stores under the Circle K banner in other countries such as China, Egypt, and Malaysia.
Its operation is geographically divided into U.S., Europe, and Canada.
Alimentation has grown its dividend per share at 24% in the last 5 years and currently offers a yield of 0.9% with $0.56 per share.
2. TFI International ($TFII)
TFI International Inc is a transportation and logistics company domiciled in Canada. The company organizes itself into four segments: package and courier, less-than-truckload, truckload, and logistics.
The package and courier segment picks up, transports, and delivers items across North America. The less-than-truckload segment transports smaller loads.
The truckload segment transports goods by flatbed trucks, containers, or a more specialized service.
The company provides general logistics services through the logistics segment.
TFI International derives the majority of revenue domestically, followed by the United States.
TFI International has grown its dividend per share at 14% in the last 5 years and currently offers a yield of 1.4% with $1.90 per share.
3. Aritzia ($ATZ)
Aritzia is a vertically integrated design house with an innovative global platform, home to an extensive portfolio of exclusive brands for every function and individual aesthetic.
Founded in 1984, in Vancouver, Canada, it creates and curates products that are both beautiful and beautifully made, cultivate aspirational environments, offer engaging service that delights, and connect through captivating communications. It prides itself on providing immersive, and highly personal shopping experiences at aritzia.com and in its 100+ boutiques throughout North America to everyone, everywhere.
Aritzia has grown its sales at 19%, profits at 28% and free cash at 45% in the last 5 years. It currently does not pay a dividend as it is rapidly expanding its stores across North America.
4. Bombardier Recreational Products ($DOO)
BRP is a Quebec based global leader in the design, development, manufacturing, distribution and marketing of powersports and marine products. The Company is a diversified manufacturer of powersports and marine products, providing enthusiasts with a variety of exhilarating, stylish and powerful products for year-round use on a variety of terrains.
The Company’s diversified portfolio of brands and products includes for Powersports: Can-Am ATVs, SSVs, 3WVs, Ski-Doo and Lynx snowmobiles, Sea-Doo PWCs and pontoons, as well as Rotax engines for karts and recreational aircraft.
BRP has grown its sales at 19% and profits at 24% in the last 5 years. BRP has grown its dividends at 27% annually in last 5 years. It currently offers a yield of 0.6% with $0.64 per share.
Summary
Diversification is vital to any smart investing strategy!
As a rule of thumb always spread your stock investments across different sectors or industries to mitigate sector specific risks.
A well balanced portfolio should have stocks from at least 5-6 sectors and the maximum allocation to one sector should be a maximum of 15%.
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Disclaimer: Please do not consider this post as an investment advice. I am not a registered financial advisor. Nothing in this article should be construed as an investment advice. Please consult a registered financial advisor before making any investment decisions.
Credits: Most of the content of this article is public information that can be found on news articles, government and company websites.