Tuesday 8 June 2010

Twelve Ultimate Buy and Hold Canadian Stocks

We are so accustomed to seeing companies rise and fall, often spectacularly so within a few short years, with disappointing or disastrous effects upon investors, that it is worthwhile to take another, perhaps more encouraging look at companies which have prospered through many years to the benefit of shareholders.

As we noted before in a comparison of so-called blue chip stocks in 1995 with 2009, corporate mortality rates are high. That has always been the case. There are very few companies around today in more or less their original name and form whose existence spans even a hundred years. The list of centenarians includes:
  • 1891 Great West Lifeco (symbol: GWO), Dividend Yield 4.9%
  • 1882 George Weston (WN), Yield 1.9%
  • 1881 Canadian Pacific Railway (CP), Yield 1.8%
  • 1880 Imperial Oil (IMO), Yield 1.1%
  • 1880 Bell Canada Enterprises (BCE), Yield 5.5%
  • 1867 Canadian Imperial Bank of Commerce (CM), Yield 4.8%
  • 1864 Royal Bank of Canada (RY), Yield 3.7%
  • 1855 Toronto-Dominion Bank (TD) - technically formed in 1955 but we'll count it since the two banks that merged to form TD both qualify, namely, the Bank of Toronto (1855) and the Dominion Bank (1869), Yield 3.4%
  • 1859 National Bank of Canada (NA), Yield 4.3%
  • 1832 Bank of Nova Scotia (BNS), Yield 3.8%
  • 1817 Bank of Montreal (BMO), Yield 4.4%
  • 1770 North West Company (NWF.UN), with a history going back to 1668; Yield 7.2%
Survival of the fittest is a term that certainly applies to this venerable group. They have survived and they are fit. Unlike most human centenarians who slow down in old age, these companies have been providing above average returns to their investors in recent times. For most of these companies, the results are outstanding. Look at the two MSN Money charts below which graph the market price of these stocks against the TSX Composite from 1997 to today. Not one has done worse than the TSX and several are hundreds of percent ahead (e.g. try out Royal Bank's historical returns calculator). To top it off, the charts do not include return from the steady dividend flow (NMF-UN's dividend payments are shown by the series of "D" symbols on its line), which for most of these companies is much above the TSX average, currently at 2.76%.

It is fascinating that the oldest company of the lot - North West Company - is the all star with the highest stock appreciation since 1997 - over 400%! - and a stream of dividends as regular as clockwork, not to mention a yield a big leap ahead of any other company in this list. The North West Company is familiar to any Canadian history student as the competitor in the fur trade to the Hudson's Bay Company, with which it merged in 1821 and spent the next 166 years until an employee buyout in 1987 (see Wikipedia article). NWF.UN still has a division trading furs and a logo of a canoe full of voyageurs - how's that for a business that sticks to its knitting?

It has not departed much from its roots in the north (though it now has operations in a number of other countries) and still touts its pioneering spirit and culture as frontier retailer. Its remarkable lengthy survival is made all the more amazing by the handsome rewards it continues to provide shareholders, a compound annual return of 25.8% over the past ten years. North West recently announced that it is converting from an income trust structure to a corporation with the intent to give off the same after-tax yield - about 4% - to a taxable investor as it does now.

And yet, this fantastic track record seems to garner the companies no respect. TD Securities rates NWF.UN as "Hold" and CIBC as "Outperform". (Canadians are known for understatement but this may be the understatement of the last 300 years.) This June 3, 2010 list of Canadian Stocks with the Highest Upside Potential ranks North West number 647 out of 694 with 0% upside potential. The highest rated centenarian is National Bank in 453rd spot.

The Future - Past Performance is No Guarantee
It is oft repeated, for good reason, that past results mean little. If a company makes poor decisions, or is in a declining industry, it will soon find itself in the dustbin of history. Selecting only the winners, as we have done, biases the results. One only has to remember the painful demise of Nortel, a company whose roots extended back to the 19th century. Canada's biggest banks, all members of this list, seem to have weathered the latest threat of the global financial crisis intact, but will they do well in a new world that is very likely to see more regulation and restriction on banks. Will North West's recent expansion out of North America prove successful? These questions require due diligence investigation by the investor.

Nevertheless, it is intriguing to consider this collection of stock winners as the ultimate buy and hold stock portfolio.

Disclaimer: this post is my opinion only and should not be construed as investment advice. Readers should be aware that the above comparisons are not an investment recommendation. They rest on other sources, whose accuracy is not guaranteed and the article may not interpret such results correctly. Do your homework before making any decisions and consider consulting a professional advisor.

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