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Sun. Jul 14th, 2024

2 no-brainer stocks to buy with $5,000

By Vaseline May30,2024

Simple lifestyle relaxation with Asian working business woman, healthy lifestyle, take it easy, rest in comfortable hotel or home living room, have free time with peace of mind and balance in own health

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Despite increasing volatility, the S&P/TSX composite index is up 2.5% this month and 6.2% this year. However, concerns about high inflation, geopolitical tensions and the impact of higher interest rates on the global economy remain. So, investors should look to strengthen their portfolios by adding quality stocks. Here are my two choices.

Dollarama

Dollarama (TSX:DOL) would be one of the top stocks to have in your portfolio due to the defensive nature of its business and its healthy growth prospects. The company’s superior direct purchasing model reduces agency costs and provides greater bargaining power, allowing the company to offer a variety of consumer products at attractive prices. So the company benefits from healthy same-store sales, even in a challenging macro environment. Moreover, the company has expanded the number of stores from 652 in FY 2011 to 1,551 by the end of FY 2024.

Amid these expansions and healthy same-store sales, Dollarama has grown its revenue and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) by 11.5% and 17.3% annually, respectively, since 2011. Backed by solid financials, the company has delivered returns of approximately 750% over the past decade, at an annual rate of 23.8%.

Meanwhile, Dollarama continues to expand its restaurant base by opening 60 to 70 stores annually and hopes to increase its store count to 2,000 by fiscal 2031. Given its efficient capital model, rapid sales growth and lower payback period for new stores, these expansions could continue to drive financial results for years to come. In addition, Dollarcity, where Dollarama owns a 50.1% stake, also plans to add 318 stores over the next five years to bring its store count to 850. The expansion could increase Dollarcity’s contribution to Dollarama.

Amid solid returns, Dollarama trades at 31 times expected earnings for the next four quarters. Although its valuation appears expensive, I believe it is justified given its solid underlying business and healthy growth prospects. Furthermore, the company has increased its dividends thirteen times since 2011, making it an excellent buy in this uncertain outlook.

Enbridge

Enbridge (TSX:ENB) is a diversified energy company that operates a pipeline network that transports oil and natural gas across North America. It also has a strong presence in natural gas supply and renewable energy. The low-risk cost-of-service contracts and utility activities make the financial sector less sensitive to market volatility.

In addition, approximately 80% of adjusted EBITDA is inflation-indexed, which provides protection against rising prices. Backed by these stable cash flows, Enbridge has paid dividends continuously since 1956 and has increased dividends 10% annually over the past 29 years.

Meanwhile, Enbridge is working on the acquisition of three natural gas companies in the United States. These acquisitions could increase its customer base to 7 million, making it North America’s largest natural gas company. Furthermore, the company continues its $25 billion secured capital program, expanding its midstream, utility and renewable asset base. Together with these growth initiatives, rising utility contributions could strengthen cash flows, making future dividend payments more secure.

With a quarterly dividend of $0.915/share, Enbridge’s annual payout is $4.58/share, while the forward dividend yield is 7.4%. Furthermore, its NTM (next 12 months) price-to-earnings ratio is 16.8, making it an attractive buy.

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