The Top Canadian Stocks for Beginners in July 2023

Sure, it’s possible to have a secure retirement if you avoid the stock market. It just isn’t very likely. That’s why every investor should own Canadian stocks.

The stats don’t lie. Overall, Canadian households who own stocks are wealthier than those who don’t. Good things happen for investors who funnel excess cash into ownership stakes in Canada’s finest companies.

The hard part, as always, is the execution. Especially for folks just getting started in the stock market. How exactly do you buy a stock, anyway? Which broker should you use? How do you choose which stocks are best? Is there an overarching strategy to it all? It’s all so daunting, especially for those who have no idea where to start.

Don’t sweat it. It’s easier than you think. Let’s take a closer look at how anyone can get started in the stock market, including general tips and specific stocks that are best for beginners.

First, choose a path 

There are two ways to invest in stocks. You can take the direct path and own stocks directly or the indirect path and own funds. These funds then take positions in stocks, bonds, and other financial interests.

There are certain advantages and drawbacks to each form. Let’s start with indirect investments, which may be easier for the beginning investor. Rather than picking and choosing individual stocks, passive investors put their money in mutual funds. Professional portfolio managers take care of the rest. 

But there are drawbacks to this strategy. These funds charge fees, and it’s difficult for rookie investors to know what’s reasonable and what isn’t. They’re also typically sold by investment advisors, who get a cut of the fees. And even though intelligent people manage these funds, the high costs generally mean they underperform their benchmarks over time.

Lower fee versions of these funds exist that trade directly on the stock exchange called exchange-traded funds (or ETFs). Investors save on costs, but in exchange, they don’t get the level of service provided by investment advisors.

Choosing your own stocks is good because you have total control over your account. But it can also be daunting at the same time. Choosing the best stocks can be difficult, especially for someone just starting. But it’s easily achievable. Some 60% of Canadian investors recently reported they’re self-directed investors. If they can do it, why can’t you?

Next, choose a broker

Self-directed investors do everything themselves, including choosing the stocks to buy and inputting orders into a trading platform. There’s no need to talk to a human; this is all done online.

Many investors struggle at this point since many online brokers tend to have very similar features. Choosing the best brokerage account isn’t that important. They’re mostly the same, anyway. Choose one that best matches your needs and go with it. 

A few of our favourite online brokerage accounts include Qtrade, Questrade, and RBC Direct Investing. These easily allow investors to purchase stocks while offering low trading fees and good customer service. You can set up separate TFSA and RRSP accounts too.

Wealthsimple Trade also offers commission-free trading, making it the cheapest discount brokerage in Canada.

How to buy stocks

The trading process itself is pretty straightforward, but there are a few things you’ll want to know.

Like an auction, stocks have bid and ask prices. The bid price is the current price buyers are willing to pay. The ask price is the price sellers are willing to sell at. Most large stocks have a minimal spread between the bid and the ask price, but smaller names will have a more extensive spread.

When you purchase a stock, you can submit several kinds of orders. There’s a market order, which purchases the stock without worrying about price. This is fine if there are a lot of buy and sell orders, but a terrible idea for illiquid stocks.

You’ll want to use a limit order if you’re buying a stock with a big spread between the bid and the ask prices. The stock gets purchased with the limit price set as the maximum you’re willing to pay. If the ask price doesn’t cooperate, the order will go unfilled.

There are also stop orders, which only come into effect once a stock trades at or through a specific price. Once the price is reached, the stop order becomes a market order.

Some general tips on choosing stocks

One of the dirty little secrets of the investment world is there’s a whole army of investment advisors, salespeople, and hedge fund managers who have a vested interest in convincing investors they can’t do it themselves. After all, they directly benefit when investors take the passive route.

Investing can be incredibly complicated, but it doesn’t need to be. Many do-it-yourself investors outperform professionals by sticking to the basics.

The first thing to remember is an investment in a stock is an ownership stake in an underlying business. The current stock price can fluctuate wildly. But ultimately, it’s the company’s health that will determine the stock’s overall success, which translates into capital gains. You’ll want to focus on stocks that increase revenue, earnings, and dividends consistently.

It’s also essential for new investors to invest in things they understand. The beauty of the stock market is there are thousands of stocks out there. Investors can easily discard the ones they don’t understand. The supply is virtually limitless.

Many of the most successful investments of all time have been products and services you use every day. These companies are an excellent place to begin your investing journey since they’re already familiar names. 

Let’s look at a few such stocks, excellent choices for any investor, but especially for someone just starting out.

What are the best Canadian stocks for beginners right now?

• Royal Bank of Canada (TSE:RY)
  
• Bell Canada Enterprises (TSE:BCE)
  
• Alimentation Couche-Tard (TSE:ATD)
  
• Saputo (TSE:SAP)
  
• Fortis (TSE:FTS)
  
• Intact Financial (TSE:IFC)
  
• Restaurant Brands International (TSE:QSR)

Royal Bank of Canada (TSE:RY)

RBC is either first or second in market share in almost every critical banking category in Canada, including retail banking, mortgages, and wealth management. It is also one of the leading ESG stocks in Canada.

It also consistently gets better returns on invested capital than its peers. Its expansion into the United States continues to pay dividends. And most importantly, shares have delivered an excellent total return of approximately 12% per year over the last 25 years. That beats benchmarks like the S&P TSX Composite Index and the S&P 500.

Wired services like home internet and cable aren’t much better, either. Consumers have a choice; they can grumble about high rates or own a piece of the pie. Seems like a pretty easy decision to me.

BCE also pays an excellent dividend. As of early 2023, the payout is $3.87 per share, which is good enough for a 6%+ yield. New investors should know dividend payouts are never guaranteed, but BCE has paid consistent dividends since the 1800s. That kind of history is excellent security.

Alimentation Couche-Tard (TSE:ATD)

Couche-Tard has delivered excellent growth for nearly 40 years, and there’s still potential for much more. There are about 150,000 convenience stores in the United States alone, meaning the company has approximately a 5% market share. Similar-sized opportunities exist in Europe and Asia.

The company also believes it can grow sales internally, identifying key areas such as hot food, coffee, and private-label products as critical areas to focus on. These strategies should be long-term winners, helping offset lost fuel sales as customers switch to electric cars.

Saputo (TSE:SAP)

Although Saputo doesn’t own the farms or the cows, supply management tends to ensure the company makes fairly steady profits. There isn’t much competition domestically as well, which is another plus.

Like many companies, Saputo used profits from a dominant Canadian business to diversify outside the country. It hasn’t had as much success entering markets with more robust competition, but it should be a viable strategy over the long term. 

One recent acquisition investors should keep an eye on is the company’s move into the UK, which included a non-dairy producer. Saputo plans to use this deal to enter North America’s lucrative plant-based dairy market.

Fortis (TSE:FTS)

Complain all you want when that bill comes in, but you’re still paying it.

This competitive advantage has helped Fortis deliver stellar returns over time. Including dividends, the stock has increased by 10.4% annually over the last 25 years, which is enough to turn a $10,000 original investment into something worth around $120,000. That’s a considerable outperformance compared to the TSX Composite Index.

Fortis has also grown its dividend every year since 1972, one of Canada’s longest such streaks. 

Intact Financial (TSE:IFC)

Intact is also excellent at underwriting, regularly paying out less than they charge in premiums. The gains from the investment portfolio — which should be higher now that interest rates have increased — are gravy. 

One thing many successful stocks have in common is an ever-increasing dividend, and Intact delivers on that front. The payout was just increased to $4.40 per share, the company’s 18th consecutive dividend increase. 

Restaurant Brands International (TSE:QSR)

It has also held its own in hot beverage sales despite an all-out assault by competitors like McDonald’s and Starbucks. Tim’s also has moved into new areas like cold beverages and espresso.

Fast food is also an attractive place to be in times of high inflation. It might cost $10-$15 per person to get chicken at Popeyes versus $20 (plus a 15% tip) at a sit-down restaurant. Customers get the dining out experience without the huge price tag. Plus, restaurants with lower price points can more easily pass through price increases.