Got $1,000? Invest in These 3 Low-Risk Wealth-Creation Options

Despite the lower risk, these TSX stocks are likely to generate solid returns in the long run.

Sneha Nahata ❯

Sneha is a M.Sc. in finance and has been a Motley Fool contributor since mid-2020. Sneha specializes in writing about bank, energy, consumer and TMT (technology, media, and telecom) stocks. She focuses on identifying winning long-term stock picks.

Published September 3, 2020 8:07 am EDT

Investors looking to preserve capital and maintain a steady flow of income can consider buying low-risk stocks to create wealth in the long term. A few TSX companies remain insulated to the economic cycles and continue to generate steady growth for their investors. These companies have a solid track record of paying higher dividends to their shareholders.

So, if you’ve got $1,000 to invest, here are three low-risk stocks you can consider buying for creating wealth in the long term.

Metro

The trade-off of investing in a low-risk stock is that we are likely to generate lower returns. However, Metro (TSX:MRU) stock has generated solid returns for its shareholders, despite operating a defensive and low-risk business.

Metro stock is up over 302% in the last 10 years, implying that an investment of $1,000 in its stock would be worth about $4,020 now. Metro continues to boost its shareholders’ returns through consistent dividend growth.

The food and pharmacy retailer has increased its dividends for 26 years in a row and remains on track to increase it further in the coming years, thanks to its ability to generate consistent profits and strong cash flows. In the most recent quarter, Metro declared a quarterly dividend of $0.225 per share, which reflects an increase of 12.5% year over year.

Metro’s recession-proof business lowers risk. Its expansion of the e-commerce capabilities, store openings, and sustained momentum in the base business is likely to accelerate growth and drive its stock higher.

Metro stock has a very low beta and offers a decent forward yield of 1.5%. Investors, looking to create wealth without taking much risk can consider buying Metro stock.

Algonquin Power & Utilities

With a return of about 305% in 10 years and a long history of paying higher dividends, shares of Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) are a top investment option for investors looking to grow their wealth with minimal risk.

Investors should note that an investment of $1,000 in Algonquin Power & Utilities shares 10 years back would be worth four times more by now. Meanwhile, the company has increased its dividends at an average annual rate of 10% over the last 10 years.

The company’s rate-regulated utility assets generate the majority of its income, which is very safe. Meanwhile, its renewables business is supported through long-term contracts with inflation-indexation to reduce price risk.

While the company’s utility assets are likely to drive its revenues and earnings and support its payouts in the coming years, the expansion of renewable energy business could accelerate its growth further. Algonquin Power & Utilities offers a dividend yield of 4.4%, which is very safe.

TransAlta Renewables

TransAlta Renewables (TSX:RNW) is another top low-risk stock to bet on for steady growth and consistent income. The company’s business remains immune to the economic downturns and wild market swings, thanks to the long-term contracts.

Moreover, its diversified and contracted business generates strong cash flows that support its payouts.

Its dividends have increased by about 4% annually since it listed on the exchange in 2013. Currently, TransAlta Renewables offers a stellar dividend yield of 5.8%, which is safe.

Bottom line

Despite lowering your risk exposure, these TSX stocks are likely to generate solid returns in the long run. Consistent dividends and higher payouts should boost your returns further.