Do These 3-Year Returns Justify Holding These 3 Stocks?

Combining Canadian Natural Resources Ltd. (TSX:CNQ)(NYSE:CNQ) with two other big-name stocks could lead to decent returns, but which stock does the heavy lifting?

Calculating the three-year returns for three of the biggest stocks on the TSX index leads to some surprising pieces of data. Let’s see whether holding the following mix of natural resources, banking, and communications stocks is a good idea, or whether a simpler route to capital gains can be found. We’ll begin by sifting through the data for each stock individually.

Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ)

Canadian Natural Resources’s five-year average past earnings growth of 46.6% suggests that a negative one-year rate may simply have been the result of a hard year, though a negligible (0.1%) expected annual growth in earnings may count this one out for the steadfast growth investor.

With a so-so balance sheet indicated by above-threshold debt at 59.1% of net worth, passive-income investors will have to weigh whether to hold for the long term, though the value-focused portfolio owner might be tempted by market-beating fundamentals and a dividend yield of 3.68%.

Bank of Nova Scotia (TSX:BNS)(NYSE:BNS)

Scotiabank hasn’t budged on its year-on-year earnings, though a 5.3% five-year average growth is at least in the black. Paying a dividend yield of 4.8%, and with just under a month until it hits its buy limit, would-be investors will have to decide whether a 2.1% expected increase in earnings over the next couple of years is indicative of a lack of upward momentum.

That said, Scotiabank is one of the most popular stocks on the TSX index and a heavy hitter of the famous Big Six bankers. While its stock may be down in the last five days, it’s still looking like a solid choice for stable long-term dividends.

Rogers Communications (TSX:RCI.B)(NYSE:RCI)

This popular wireless comms stock’s one-year past earnings growth of 20.3% improves on its five-year average of 4.2%, while quality is suggested by an expected three-year ROE of 23.4% that looks set to continue on from a past-year return on equity of 25%.

While value might not be what investors look for in Rogers Communication (see a P/B of 4.4), its dividend yield of 2.83%, matched with a moderate 7.9% expected annual growth in earnings, could make it eligible for a long-term play.

What if you owned all three stocks?

If an investor were to hold all three stocks for three years, as a group they would yield a projected 33.2%, representing potential capitals gains of 21% and expected dividends of 12.2%. It would be a fairly secure part-portfolio, with a five-year beta of 1.13, with Canadian Natural Resources’s 1.83 brought down by Rogers Communications’s 0.39.

In terms of industrial diversification, wireless telecommunication services, energy, and diversified banks each make up a third of the total, while if an investor bought all three stocks right now, their combined P/B ratio would be 2.4, with a combined P/E of 13.3.

The bottom line

Looking at this three-stock portfolio in terms of heavy lifting, Rogers Communications is doing more than its fair share with 51.43% of the total. This is followed by Scotiabank’s effort with 37.46%, and trailed by Canadian Natural Resources’s contribution of 15.78%. In short, if one were to buy just a single stock from this trio with a view to holding it for three years, Rogers Communications should be that stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. Bank of Nova Scotia is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »