American politician Ronald Reagan once said, “It’s said that hard work never killed anyone, but I say why take the chance?” Warren Buffett took this quote to explain his passive investing mantra of buy and hold. The stock market is swarming with many new types of currencies, instruments, and strategies. In a rush to make money in the short term, the gen-x and hedge fund managers are prying on momentum and growth stocks, putting value stocks in the backseat.
Buffett’s stance on momentum investing With great returns comes great risk. You win some buy lose many. For instance, bitcoin gained a lot of attention in late 2020 and made many millionaires in the short term. Even hedge fund managers and Tesla CEO Elon Musk invested billions in this cryptocurrency. But Buffett being the contrarian investor criticized bitcoin in a 2018 CNBC interview. He said bitcoin is “probably rat poison squared.” He added, “If I could buy a five-year put on every one of the cryptocurrencies, I’d be glad to do it but I would never short a dime’s worth.”
Buffett is right on his part as bitcoin has no intrinsic value and is associated with many frauds. The limited application of the digital currency makes it a bad investment in Buffett’s eyes. So momentum is off the table. But share buybacks and dividends still bring a smile on the 90-year old investor.
Value never goes out of fashion and survives harsh climates. Like a tortoise, value stocks stop moving to protect their cash flows during a crisis. Once the crises subside, they resume their path of dividend growth and buyback.
Two Buffett stocks to buy right now Momentum stocks will only give you short-term gains, and such events won’t come often. Balance your portfolio with some sturdy returns on which you can fall back for emergencies. That is where you adopt the Buffett-way of dividends and buybacks. Here I bring to you two Buffett-like stocks that can protect your Tax-Free Savings Account (TFSA) portfolio from volatility.
One of the top four jewels of Berkshire Hathaway (NYSE:BRKa) is Berkshire Hathaway Energy, whose annual earnings have grown from US$122 million to US$3.4 billion in 21 years of holding. That is the power of not doing hard work and just holding it for years.
Enbridge Energy is an essential commodity and is exposed to price fluctuation. But a robust business within energy is the transmission. Pipeline infrastructure company Enbridge (TSX:ENB)(NYSE:ENB) doesn’t have direct exposure to oil and natural gas prices. They collect the toll for letting the oil and natural gas pass through their pipelines.
As Enbridge earns 99% of its cash flow from long-term contracts, its dividends are secure. Hence, the company increased its dividend at a compound annual growth rate (CAGR) of 10% in the last 26 years. In dollar terms, if you invested $1,000 in Enbridge back in 1996, your annual dividend income has grown from $59.4 to $781.5 in 2021. This is the reward for doing nothing.
But it doesn’t mean Enbridge has no risk. In fact, the risk is increasing as the energy market is shifting to renewables, ending the 100-year dominance of oil. But even Enbridge is moving to renewable energy, and only time will tell how fruitful this transition proves for dividends. Until then, a 7% dividend yield and a 6-8% dividend growth won’t harm your portfolio.
BCE BCE (TSX:BCE)(NYSE:BCE) is another stock you may consider. The top two U.S. telecom providers T-Mobile and Verizon hold a spot in Buffett’s portfolio. After years of losses, capital spending, and consolidation, the communication industry has finally matured and is making profits. With the 5G revolution, communication will become even more relevant as your dependency on the internet will only grow.
Operating Canada’s largest communication infrastructure and expanding its 5G footprint, BCE is a perfect suitor for the 5G momentum. It has been paying regular dividends since 1983. But the real growth came in 2010 with the growing penetration of the internet. In the last decade, it has increased its dividends at a CAGR of 6.4%. The 5G momentum will pave the way for more dividend growth in the 2030 decade.
The post Warren Buffett: 2 Canadian Stocks to Buy Right Now appeared first on The Motley Fool Canada.
Fool contributor Puja Tayal has no position in any of the stocks mentioned. David Gardner owns shares of Tesla. Tom Gardner owns shares of Tesla. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Enbridge, and Tesla. The Motley Fool recommends T-Mobile US (NASDAQ:TMUS) and Verizon Communications (NYSE:VZ) and recommends the following options: short March 2021 $225 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares).
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