Investing is about how much you invest and how long you stay invested for. Of course, what you invest in matters as well – they should be solid businesses that drive satisfactory long-term returns. Here are a couple of stocks that have solid businesses and proven track records of delivering decent long-term returns. They have the potential to turn $10,000 into $18,020 over the next five years, assuming you invest $5,000 in both stocks today.
National Bank of Canada
National Bank of Canada (TSX:NA) primarily operates in Canada, getting approximately 80% of its revenue domestically. In particular, it generates about 55% of its revenue from Quebec. So, the health of the Canadian economy affects the Canadian bank’s earnings.
Perhaps as a smaller big bank – being the sixth-largest Canadian bank – it has had fewer expectations from the market. The stock traded at similar multiples as today 3, 5, and 10 years ago. Yet, according to YCharts, in the last 3, 5, and 10 years, the bank stock outperformed the other Big Six Canadian banks. Specifically, its 3-, 5-, and 10-year total returns were approximately 15.2%, 15.1%, and 13% per year, respectively.
Today, the bank appears to be fairly valued trading at about $100 per share at a price-to-earnings ratio of about 10.4. With the help of its dividend that yields 4.2% right now, it could deliver at least 10% per year over the next five years. Investors can add to their positions on meaningful dips of at least 7% from a peak to help drive higher long-term returns.
National Bank has a long history of paying safe dividends. It managed to increase its dividend by 10.5% over the last 20 years, even though it maintained the same dividend in three of those years around recessionary times caused by the global financial crisis of 2007/08 and the 2020 pandemic.
Brookfield Infrastructure Partners
Brookfield Infrastructure Partners L.P. (TSX:BIP.UN) seems to be an even more attractive income stock. According to TMX, the recent analyst consensus 12-month price target of $52.23 per unit suggests the top utility stock trades at a discount of about 20%. The stock has likely been pressured by higher interest rates since 2022. Other than positive execution of its operations, news of rate cuts will also drive a higher BIP stock price.
The utility can service its debt. It has an investment-grade S&P credit rating of BBB+. And in the last reported quarter, that is, the third quarter, it noted that it maintains a well-laddered debt profile with an average term to maturity of about seven years with approximately 90% of fixed-rate debt having about 5% of debt maturities coming due over the next 12 months.
Brookfield Infrastructure is a global owner and operator of infrastructure assets that provide essential services which are diversified across transport, utility, midstream, and data infrastructure. Management anticipates significant growth in the sector from the trends of digitalization, decarbonization, and deglobalization.
The stock has increased its cash distribution for longer than a decade. Going forward, it targets to grow its distribution by 5-9% per year, which aligns with its historical growth rate. To be sure, despite the weakness in the stock over the last year and a half or so, it still delivered total returns of about 15% per year over the last 10 years.
BIP targets to grow its funds from operations per unit by north of 10%. It offers a cash distribution yield of about 4.9%. Let’s be conservative and assume little valuation expansion, the stock could still deliver total returns of about 15% per year over the next five years.
An average estimated return across the two stocks would be 12.5% over the next five years. Assuming this return is achieved, a total investment of $10,000 balanced across the two stocks today would turn into about $18,020 in five years. Now, that’d be a decent return.
