Update: 10 Canadian Stocks to Buy and Never, Ever Sell

A little over a year ago, inspired by a tweet by Value Stock Geek, I put out a list of stocks I would be happy to own forever.

To make it on the list, a company had to have the following characteristics:

1. It had to pay a growing dividend

2. An excellent underlying business

3. With a strong emphasis on competitive advantage

4. Limiting my choices to Canada, since this is Canadian Dividend Investing

The result was a top-10 list of companies that I thought were quite high quality, excellent businesses that had easy to identify moats, paid ever-increasing dividends, and, perhaps most importantly, were the kinds of companies that I’m excited to own over the long-term. You should get pleasure when you look at your portfolio, in my view. If not, you’re doing it wrong.

Here’s the original list:

1. Royal Bank of Canada (TSX:RY)

2. National Bank of Canada (TSX:NA)

3. Fortis (TSX:FTS)

4. Dollarama (TSX:DOL)

5. Canadian National Rail (TSX:CNR)

6. Choice Properties REIT (TSX:CHP.un)

7. TMX Group (TSX:X)

8. Brookfield Asset Management (TSX:BAM)

9. Intact Financial (TSX:IFC)

10. Telus Corporation (TSX:T)

Let me be clear before we start. I still think this is a great list. These are wonderful companies that I all think are going to do just fine over the long-term. I own all ten, and don’t have any plans to sell a single share.

But, at the same time, I also think that a few of the companies in the original list have become too expensive. If they stumble just a bit and slowly come back to historical norms valuation wise, it could lead to a decade of subpar returns. I know we shouldn’t care about such things if it’s a buy-and-hold forever philosophy, but I know of very few investors who can handle such a thing.

I’ll also note that Warren Buffett, the king of buying and holding forever, factors valuation into his investment decisions all the time. He won’t buy unless something is cheap.

So allow me to present the updated list, which includes a few names that are more in my buy zone today.

Updated list — first five

I’m going to stay consistent. Royal Bank of Canada will continue to be my first choice on this list.

Royal Bank checks off a lot of boxes. It has managed to rise to the top of Canada’s banking oligarchy, commanding the number one or number two spot in pretty much every Canadian banking category that matters. It’s a leader in wealth management and capital markets, too. And it does all that while maintaining a good balance sheet and periodically making nice acquisitions.

Y’all can be worried about the Canadian economy or housing market or rising delinquencies or whatever else, but do it without me. Royal Bank is a bet on Canada over the long-term, and I’m comfortable making that bet.

Next up is National Bank, which I’m also going to keep on the list.

National Bank consistently earns a higher return on equity versus its peers, something that it has largely accomplished because it doesn’t have much non-Canadian exposure. Canada is a terrific place to be a bank; just look at the results from a Canadian-centric banks like National Bank or EQ Bank over the years. Our banks have great balance sheets, earn better returns on equity, and get their riskiest mortgages insured by the federal government — a privilege the borrower pays for. Fantastic.

National Bank recently acquired Canadian Western Bank, a perennial underperformer located here in Alberta. There’s always risk in making a big acquisition, and doubly so if the assets you’re buying have a history of lackluster results. But National Bank is such a good operator that its solid habits should rub off on new employees. Besides, the strategic advantage of getting a foothold in the west shouldn’t be understated. These guys are a national (heh!) player now.

Fortis was third on the original list and I’m going to stick with it — while also saying that I just wouldn’t buy the stock today.

The regulated utility business isn’t going to wow anybody. Governments get involved and ensure the operator gets a fair return, but hardly a stellar one. The good news is the underlying assets slowly get more and more valuable, which in turn generate consistently rising cash flows. Fortis pays out the majority of those cash flows back to investors, while keeping some for itself — to spend on capital expenses, expand the business, or pay down debt.

What you get is a company that is exceedingly likely to increase the bottom line by 6-8% per year. Combine that with the dividend — Fortis currently pays a 3.6% yield — and we have a company that should combine to earn about a 9-11% total return on a fairly consistent basis. It’s not sexy, and you won’t get any books written about you if you buy it, but it works.

I wouldn’t buy it today simply because I see better opportunities in other parts of the market. Amid the market chaos of the last few months, Fortis has done quite well, and shares are flirting with a 52-week (and all-time) high. I like to buy at 52-week lows, so I’m not super interested in adding to my position.

The next choice is Dollarama, and this is the first difficult position of the exercise. Let me be clear; I think Dollarama is an excellent business. The company continues to open new stores, 10,000-15,000 square foot locations that are large enough to pack a punch, but small enough that the company can pivot away from something that doesn’t work. Vendors love dominating a section at Dollarama, and will happily take lower short-term profits to create a long-term relationship with the retailer.

Also, Dollarama gets ridiculously good returns on its capital. The typical time it takes the company to get its money back after investing in a new store is 2-3 years. That return has stayed consistent for a while, too.

Finally, we shouldn’t sleep on the Latin American growth here. There are currently about 550 Dollarcity locations in Colombia, Peru, Panama, and Guatemala, with Dollarama owning 60% of the chain. It plans to expand into Mexico starting in 2026, and the goal is to have more than 1,000 stores by 2031. Also, the company just announced a deal to acquire The Reject Shop in Australia, giving it a growth platform there.

The problem is Dollarama shares are expensive. The stock trades for nearly 40x forward earnings, which is a lot. This creates a situation where even if the company performs, shares could grind lower for years if the stock doesn’t surpass expectations. Don’t scoff at this potential outcome; the stock did pretty much the same thing between 2015 and 2018.

And because of that, I’m going to make a change here. I’m going to swap out Dollarama for Alimentation Couche-Tard (TSX:ATD). Couche-Tard doesn’t need much of an introduction, the company has been a stellar performer for years. The convenience store business is a good one, and Couche-Tard has a demonstrated history of squeezing more out of assets it acquires. Plus, the stock is temporarily depressed because of a tepid North American economy and uncertainty surrounding a potential 7-11 acquisition.

Up next is the worst performer of the original list — CN Rail. CN shares are down approximately 20% in the last year on the Toronto Stock Exchange, weighed down by tariff fears, a tepid Canadian economy, and somewhat lackluster earnings in 2024.

I’m the first to admit the short-term looks a little dicey here, but the long-term still looks fine. CN has a terrific moat, a collection of assets I wouldn’t even try to replicate. The network — which spans some 19,000 route miles — will continue to be there when this tariff nonsense abates and business gets back to normal. In the meantime, we’ll note that most of CN’s network is in Canada. Meaning that tariffs won’t hurt that part of the business as much as the United States.

Updated list — second five

Choice Properties REIT (TSX:CHP.un) was the sixth choice for the original list, and I’m going to keep it on the updated version. It’s too fine to punt, and the stock is still trading at a reasonable valuation.

Choice is my top REIT pick for a number of reasons. Firstly, I love the portfolio. It owns 700+ properties across Canada, with about 70% of space dedicated to retail. This mostly includes grocery stores, but also some ancillary retail as well. The balance sheet is excellent. The distribution is well-covered and the payout ratio is reasonable. And the company keeps slowly expanding, which adds to the bottom line.

But what I really like about this one is it’s a cheap way to buy land. Choice’s largest tenant is Loblaws, and the real estate is largely stores with large parking lots. That’s valuable real estate as cities continue to grow, and the grocery store anchors attract lots of foot traffic. That bodes well for the future.

I’m going to pivot for my next choice. Originally I picked TMX Group (TSX:X), which I still think is a wonderful company. But the stock has rocketed higher in the last couple of years to the point where the valuation is getting a little out of hand.

I simply just can’t bring myself to pay 27x earnings for the stock — especially when we see the mean valuation over the last decade is about 18x earnings.

So I’m going to pick another excellent company that I feel is just too undervalued today. That stock is A&W Food Services (TSX:AW), which is the owner of what I think is Canada’s finest fast food chain.

What makes A&W so special? The company combines better ingredients, delicious food, smart marketing, and great locations into one powerful combination. Western Canadian readers can confirm that there’s an A&W in every small town in B.C., Alberta, and Saskatchewan, locations that do brisk business. These restaurants have successfully become a sort of third place for seniors in these small towns, who often gather there in the morning.

You might remember A&W in its previous form, as a royalty trust. The trust collected 3% of sales off the top, which translated into plenty of cash flow. Capital gains followed as sales increased. But in exchange for adding new restaurants to the pool, Food Services received Royalty shares as compensation. That capped upside somewhat.

The good news is that cap is gone with a 2024 transaction that saw Food Services acquire the Royalty asset. It paves the way for better long-term upside potential, all while paying about the same dividend.

This better long-term potential, plus improved sales (which will come, eventually), should bode well for the stock in the long-term. And, while you wait, you’re treated to a 5.9% yield.

Next up is Brookfield Asset Management (TSX:BAM), which I’m going to stick with as well. These guys are too good at what they do, and there’s just too much wealth around the world that needs to be managed effectively.

One thing you’ve gotta love about Brookfield is it pays about $0.42 for logo design. That’s frugality at its finest.

Brookfield Corporation is a popular stock as well, and I often get asked why I prefer the asset management arm versus the parent. For me, it’s a fairly simple answer. The parent is a combination of ownership stakes in various types of assets, which I think perpetually trade at a discount to the sum of its parts. I also enjoy the outsized dividends from the various Brookfield subsidiaries I own. For instance, Brookfield Renewable Partners offers a 6.9% yield, while Brookfield Infrastructure Partners offers a 6.2% yield. Even BAM offers a 3.4% yield, while the parent only offers a 0.7% yield.

I’m going to stick with Intact Financial (TSX:IFC) for my ninth pick. Led by CEO Charles Brindamour (who I think is the most underrated CEO in Canada), Intact has quietly built up a growth by acquisition model that has exposure to Canada, the United States, and even into Europe.

But what I really admire about Intact is just how disciplined it is on the underwriting side. The company consistently reports an operating ratio that is among the best in the industry — consistently beating out peers like Berkshire Hathaway’s GEICO.

Even after a big run-up — shares are flirting with an all-time high and have gone up 34% in the last year — the stock is trading at a still reasonable 18x forward earnings. That’s a little pricey, but analysts expect the company to grow the bottom line by 10% per year through 2027, and that doesn’t even include the impact of any acquisitions.

Oh, and Intact is a dividend growth machine. Check this out.

Last but certainly not least is Telus Corporation (TSX:T), which is still a wonderful company even if the wireless landscape has gotten more crowded in Canada over the last few years.

Telecom is a good business, even if it is a capital intensive one. Margins are strong, customers are sticky, and Canadian immigration should ensure a steady influx of new customers. Besides, lower interest rates should help here.

This analyst thinks that Telus has been unfairly grouped with BCE, a company whose dividend is going to be cut. It’s only a matter of time. Telus’s payout is also a little higher than where I’d want it to be, but is projected to steadily come down in the next few years.

Telus is also taking steps to get its debt a little lower. It’s examining a few different options, including spinning out some of its real estate, or selling an ownership stake in its towers. Lower interest rates should also help here.

In summary

Let’s take a closer look at how the list has changed:

1. Royal Bank of Canada (no change)

2. National Bank of Canada (no change)

3. Fortis (no change)

4. Alimentation Couche-Tard (replaces Dollarama)

5. Canadian National Rail

6. A&W Food Services (replaces TMX Group)

7. Choice Properties REIT (no change)

8. Brookfield Asset Management (no change)

9. Intact Financial (no change)

10. Telus Corporation (no change)

I’ll also remind everyone that I haven’t sold my shares in either of Dollarama or TMX Group. I might think both stocks are expensive today, but one thing I’ve learned in my years of investing is there are tons of stocks that are perpetually expensive — and shares continue marching higher for decades despite that handicap.

I take the “don’t sell” philosophy seriously. Some of the biggest investing mistakes I’ve made are selling long-term winners too early. I’m not about to do the same thing with this list.

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