At the beginning of 2021, Bob (..from TawCan.com) approached me to contribute for an article which he was working on to list down best Canadian dividend/growth stocks. The ask from me and 17 other Dividend Growth Investors (DGI) was simply to pick our top 3 stocks and provide reasoning! His article took a great shape and became a go to post for beginners to find good stocks, it can be read here – Best Canadian Dividend Stocks. It was my first time collaborating with such masters and in order to come up with my picks, I took a methodical approach which is documented here in my own blog here at 2021 Top 3 Picks – Canadian Dividend Growth.
My top 3 picks for his article back in Jan’21 were GoEasy Financials, Kirkland Lake Gold Ltd & Agnico Eagle Mines and my selection was purely based on dividend growth data for recent past years (one and three). The last dividend raise for Agnico was astonishing 75% while Kirkland raised theirs’ by 50% and GoEasy gave a handsome 45.16% raise! All 3 companies dividend growth were amongst the top and it is worth mentioning that since then GoEasy again raised their dividend by whopping 46.67%. Even if you look at their average three years dividend growth percentage, they are quite envious. In terms of price appreciation, GoEasy lead the pack by YTD increase of 92% (163% in last 1 year!), Kirkland by 1% & Agnico decreased by 25%. If I had invested $10,000 in each of these 3 stocks, my value at the time of writing would have been about $37,000, an increase of 23%. It is a good return by all means but if I had to redo this, I wouldn’t choose 2 gold stocks. Gold miners/stocks have suffered in the last one year due to declining gold prices from the peak of Aug’20 amidst pandemic uncertainty by almost 25%. A bank or an utility company would have been a better choice. For the records, I only got a chance to buy GoEasy (..talk about getting lucky!) and we have doubled our money so far. There was also an announcement coming out in late Sept that Agnico is buying Kirkland Gold for $13.5 billion!
Bob contacted me again few weeks ago and this time he wanted to work on a similar article, but focusing on US based stocks! Again I am both nervous and excited as these exercises are quite enriching and a great learning experience. US stock exchanges – NYSE & NASDAQ are top 2 exchanges in the world in terms of market capitalization while Canada’s own TSX sits at the distant 9th spot. These two US exchanges lists more than 6500 companies with about 35 trillion dollars (give or take) market valuation; TSX in comparison is about 2 trillion dollars only. Given these many stocks to pick from, the task is quite daunting and intimidating but I recall long time ago someone telling me a very basic thing about stock selection – Look around for products/services you use daily and buy the companies that provide them! The idea is quite fundamental yet very strong, imagine a company manufacturing your toothpaste or supplying you electricity/gas or medicines you need or the phone you use or car you drive. These companies are so penetrated in everyday life that it is hard for them to go out of business, even if the consumer usage habit or the rule changes, these companies will adapt and innovate to remain in the business. So.. my approach for this exercise is based on this principle and hence is quite simpler than methodically weeding out stocks based on their fundamentals or dividend data. I am just going to pick 3 different sectors and talk about my favourite stocks from each of them. For now I am going to go with Technology, Financial & Pharmaceutical sectors and these stocks I bet are worldwide household names, especially in ours!
Technology – Apple
If you haven’t heard about Apple Inc then you are probably from a different planet! Apple was founded on 1-Apr-76 and they started their journey building personal computers (..called Macintosh back then) and back then spawned into Camera, Gaming console, Clothing line (wow.. can you believe it!) & iPod to survive! In present world they sells Macbook, iPad, iWatch, Airpods, etc but rules the consumer electronics space worldwide with their iPhones. They have sold nearly 2 billion phones so far with 1 billion active users currently and recently launched the latest iPhone 13 model. In 1985 Steve Jobs was oust from Apple as CEO but was brought back in 1997 when the company was in dire financial situation. And just in 14 years Jobs turned the company’s fortune around with his vision, dedication and ruthless leadership launching one successful product after another focusing on design aesthetics and ease of usage; and in 2011 Apple had more cash than the US treasury!
A successful company needs a deep pocket to spend on innovation and research, so they keep churning out unique product or service for its customer base. As per Boston Consulting Group, Apple singlehandedly ruled the innovation landscape since 2005 till 2021, not under its hometurf of Technology & Telecommunication sector but also amongst all other sectors.
Apple is also the biggest company in the world in terms of market-cap and the first company to attain every market-cap milestones so far – be it $500 billion or $1 trillion or $2 trillion and now sits at the top with about $2.38 trillion valuation. Apple is followed by Microsoft, Google, Amazon & Facebook in terms of companies valuation and in last 5 years, Apple beats them all in price appreciation of about 400%, quite a returns on investment for its shareholders! The dividend yield is 0.62% with dividend payout ratio of 27% and the last 5 years dividend growth rate is 9.30%
In our home, in total we possess six devices and few more which aren’t used anymore. Even if you go outside and look around, you will surely notice every other person using an iPhone, so with such widespread usage it only makes sense to own a piece of this mammoth of a company!
Financial – Visa
VISA Inc is another such company which you will find in almost every wallet or pocket in the world! It is an American multinational financial services corporation and one of the world’s most valuable companies, which facilitates electronic funds transfers throughout through Visa-branded credit, debit and prepaid cards. Visa do not issue any card by themselves, rather they provides financial institutions with Visa-branded payment products that they then use to offer variety of cards. They IPO’d in 2008 and back then it was the largest IPO in history at $17.9 billion! Visa have about 2.5 billion cards boring their brand name earning transaction fees for them every time their card is swiped/tapped/inserted anywhere and as per 2020 data, a whopping $8.8 trillion transactions were processed by them with net revenue for Visa of $22 billion!
Visa’s competitors are Mastercard, American Express, Discover and many other small players but their main challenger is Mastercard. You will find plenty of articles all over the internet comparing these two companies and choosing one over the other; but my leaning is more towards Visa considering widespread usage in our household. I recall my first debit card had a VISA logo on it and I wondered why as the card belonged to a local bank. Looking at all our current cards, the count is like 8-2 in favour of VISA and the ones belonging to Mastercard are Costco & Walmart cards, with which they have contract! In the last 5 years, Visa stock price appreciated about 170% with dividend yield of 0.58% with dividend payout ratio of 25% and the last 5 years dividend growth rate is 18%
Covid changed the way world shop and pays which in all likeliness is going to stick around now. More and more people are shopping online and if not, at least avoid using cash and this change in behaviour is obviously boosting card payment and hence increase in related transaction fee. More so I read somewhere, the pandemic boosted debit card usage a lot by consumers who preferred cash earlier, and VISA’s debit card programs and penetration is bigger as compared to Mastercard and hence I believe VISA is a good choice.
Pharmaceutical – Abbvie
Abbvie Inc is an American biopharmaceutical company spinned off Abbott Laboratories in 2013 and hence is a relatively young company. After the split, Abbott takes care of medical devices, diagnostic equipments & nutrition products and AbbVie operate as a research-based pharmaceutical manufacturer & seller. Abbvie’s infamous product Humira (..which is used to treat Rheumatoid arthritis, Psoriatic arthritis and Crohn’s disease) is the number one selling drug in the world since 2015! Last year it brought in nearly $20 billion revenue for Abbvie while the second highest selling drug Eliquis made nearly $10 billion for their parent company, so you can judge how mammoth Humira is for Abbvie! While patent for Humira is expiring in different parts of the world, US patent is going to expire in early 2023 and until then there is no doubt Humira will rule Abbvie’s revenue charts and even a bit after that as it may take a while before other companies catchup and brings in biosimilars in the market. Abbvie majorly have 16 products selling in international market and many others in either research pipeline or acquisition plan, last year itself the company acquired Allergan, manufacturer of Botox for about $63 billion.
Abbvie have been consistent with the return on investment for its shareholders, ever since its inception. In last 5 years, Abbvie stock price appreciated about 80% with a juicy dividend yield of 4.79% with dividend payout ratio of 49% and the last 5 years dividend growth rate is 18%. With this kind of yield and a solid past record, Abbvie qualify as a long term stock to hold, at least for me.
Just like Apple & Visa products that are widely used in our household by choice, unfortunately Abbvie was also a company whose product I used in the past! Probably readers know, I am a Crohns disease patient (..or shall I say veteran!) and I have used Humira for more than 5 years.
Key Metrics
Below are some of the metrics I collected for readers from various websites and may be a bit off or stale, so please do check the latest. The focus is mainly on past price appreciation and dividend growth.
Also below is the chart showing Apple, Visa & Abbvie growth in last 5 years.
Conclusion
US market is so huge that picking just 3 stocks is like looking for a needle in a haystack even for professional analysts. I am no analyst and hence I chose 3 safe and boring blue chip stocks with proven track record and dominant position in their respective field. They all are well positioned to survive and grow for at least next few decades and even if the market demand, usage pattern, local rule changes or if they encounter a disrupter, they are all well capable to adapt or acquire to changing landscape. They all are relatively safe companies with no surprise elements and shall benefit their shareholders with double-digits return over years to come along with increased dividends.
We currently own a little bit of both Apple & Abbvie under our dividend portfolio and shall add Visa as well when we get a chance.
Happy Investing and Good luck with whatever you buy! 😊
