You Won't Believe How Good This Portfolio of "Boring" Stocks Did

Note: your author is on vacation for the next couple weeks. This article was written in advance so some of the figures may be slightly out of date.

One of the lessons about investing I had to learn the hard way was this. The market doesn’t care how much work you put into an investment.

One of the most dangerous parts about getting a little bit of knowledge is many investors immediately get excited about showing it off. Some go on Twitter and say a lot of authorative statements; some settle into a style that is not conducive to long-term returns; and some look for bargains in the most obscure corners of the market.

I use these three examples because you could argue I suffer from these maladies. They were three of the many investing lessons I’ve learned over the years.

I want to talk a little more about searching the darkest corners of the market for returns. Some investors love hanging out in that playground, discovering hidden gems. After all, that’s where Buffett got his start. But the market doesn’t add on any bonus points for creativity, and it’s very unlikely the market will discover some hidden value you find on the TSX Venture Exchange.

Besides, there are enough solid values hiding in plain sight, the kinds of companies that have delivered solid returns for decades. They’re not nearly as exciting as getting in on the next big thing before everyone else discovers it, but they can very quietly make you wealthy.

Just how wealthy? I’m glad you asked. I’d like to profile 10 of these boring stocks in today’s most, the kinds of names that have delivered excellent under-the-radar returns over the last 20 years. There’s no guarantee they continue doing that, of course, but I like their chances.

Here are 10 stocks that, combined, turned a $100,000 initial investment into something worth more than $1M 20 years later.

Rogers Sugar

20-year return: 12.26% CAGR$10,000 turns into: $93,081

What can I say about Rogers Sugar (TSX:RSI) that I didn’t already say a few months ago?

Rogers Sugar is about as boring as it gets. Who the hell cares about sugar? And how can a no-growth product deliver decent investment returns?

Firstly, Rogers has quietly shed its sluggish past and captured a few growth opportunities. It expanded into maple syrup, which is an improving — albeit lumpy — business after a few initial hiccups. It’s also expanding capacity at its Montreal sugar facility, production that is already mostly spoken for. And natural gas prices cut into profits recently, a problem that is managed through a hedging program.

I’m the first to admit Rogers’ huge 6.3% dividend is a huge driver to overall returns. If it gets cut, for whatever reason, the stock would crater. But I wouldn’t spend much time worrying about that. Free cash flow in the last twelve months came to $0.45 per share; the dividend is $0.36 per share. A payout ratio of 80% is no higher than many favourite REITs or telecoms.

I lose absolutely zero sleep worrying about Rogers’ dividend.

Boralex

20-year return: 13.78% CAGR$10,000 turned into $132,320

For those of you unfamiliar with Boralex (TSX:BLX), which is likely most of you, it’s a power plant operator that started focusing on renewable energy 20 years ago. That’s back before it was cool.

These days its portfolio includes wind, hydro, solar, and power storage assets in Canada, the United States, France, and the United Kingdom. Installed capacity is 3,000 MW with plans to expand to 4,000 MW. Additionally, the company just agreed to purchase 50% of a 900 MW wind project in the United States.

Boralex isn’t really a dividend growth stock, maintaining the same $0.66 per share payout since 2019. And it has been a serial share issuer to pay for acquisitions. But the strategy seems to be working, with both revenue and operating income consistently increasing year after year.

Richelieu Hardware

20 year return: 11.64% CAGR$10,000 turned into $90,502

Richelieu Hardware (TSX:RCH) is a distributor of specialty hardware products serving over 100,000 active clients in North America. They offer more than 130,000 SKUs.

The company has spent years consolidating the hardware distribution center sector, buying up local distributors based on whether they’re a good fit for the Richelieu culture. It has worked pretty well; sales were $60M when the company IPOed back in 1993. These days the top line approaches $1.8B.

There’s still plenty of opportunity to grow, too. It has 47 distribution centers in Canada and only 57 in the U.S., despite the U.S. market dwarfing the Canadian market in size. And with shares down close to 30% from 52-week highs, the stock has become relatively cheap on a P/E basis for the first time in a long time.

Richelieu also pays a 1.6% dividend, a payout that has increased consistently for most of those last 20 years — excluding a little hiccup during 2020. Just last week it announced a 15% dividend hike. The company has also consistently repurchased shares while still making acquisitions, and is in the position it can easily tuck in 4-6 acquisitions a year without issuing shares or taking on huge amounts of debt.

TMX Group

19.31 year return: 15.87% CAGR$10,000 turns into $171,960

You’ll have to forgive me on this next one. TMX Group (TSX:X) hasn’t quite traded for 20 years. It had its IPO back in October, 2003.

Everyone reading knows what the stock does. It operates Canada’s largest stock exchange, an exchange many investors avoid because they view it as being full of frauds and shitty junior mining companies. The exchange might not have the same clout as the NYSE, but it’s still been an excellent performer.

Stock exchanges are typically good businesses. TMX has delivered consistent 90%+ gross margins and 50%+ operating margins for years now. This comes with nice growth, too, with revenues basically doubling since 2016. And at 18x 2023’s estimated earnings, the valuation is reasonable too.

This is definitely a stock I’ll be looking at the next time it falls 20%.

TFI International

20 year return: 22.41% CAGR$10,000 turned into $494,338

Led by CEO and largest shareholder (always nice when those two things can be combined) Alain Bedard, TFI International (TSX:TFII)(NYSE:TFII) is a trucking and logistics company that wins on cost controls. They are the most ruthless operators in the industry, and it shows in their results.

TFI has made dozens of acquisitions over the years with a overall excellent track record. Every now and again the company stumbles when it acquires something. Those have turned out to be excellent buying opportunities.

TMX Group is a case where a good business can’t help but to make great returns. TFII isn’t such a good business, only eking out 8-10% operating margins. But Bedard is ruthless, leading to steadily improving numbers each year. And at about the same valuation as TMX Group, the stock isn’t too expensive today.

North West Company

20 year return: 14.58% CAGR$10,000 turned into $152,230

I can already hear the criticisms:

But Nelson! A trucking company isn’t boring! And a hardware distributor? THAT’S GOING TO ZERO ONCE THE REAL ESTATE BUBBLE BURSTS YOU KNOW.

Okay, fine. Here’s North West Company (TSX:NWC), which sells groceries (and other stuff) in remote communities. There’s only enough room in each community for one store, and each NorthWest store is impossible to ignore because they also offer services like banking, post offices, and various types of fast food.

Retail is a crummy business in the city. You can just walk down the street and buy the same item at a lower price. It’s a much better business in remote communities. This translates into higher margins and a business that doesn’t have much exposure to underlying economic trends.

North West has consistently raised its dividend for the last decade. The current payout is 4.2%.

I wrote a little more about North West a few months ago.

Canadian Western Bank

20 year return: 9.87% CAGR$10,000 turned into $65,736

I’ve talked a lot about Canadian bank stocks on both here and Twitter, encouraging investors to buy the six largest and calling it a day. Don’t bother to try and pick one over the other, I say. Just buy em’ all.

And then I get on here and talk about Canadian Western Bank (TSX:CWB), which isn’t a part of the big 6. A lot of people outside of Alberta haven’t even heard of it. Why would I even bother?

First off, look at the very right part of the price chart above. CWB shares have been smoked lately. They trade at a discount to almost every other bank with metrics like a trailing P/E of 7.9x and a forward P/E of 7.6x. Shares also trade at a big discount to book value, compared to its peers that trade at a premium to book. CWB has outperformed the big 6 banks on revenue growth and dividend growth over the last handful of years, too.

I’m the first to admit CWB gets hurt more than a larger bank if there’s a steep recession. Its business lines are more sensitive to the overall economy than its larger peers. But that also gives it better upside potential, especially if the recession turns out to be a mild one.

A&W

17.59 year return: 12.63% CAGR$10,000 turned into $80,984

I can’t believe it took me until almost the end to bring up A&W Revenue Royalties Trust (TSX:AW.un).

I’m the first to admit restaurants are a crummy business. It’s painful to see so many entrepreneurs light their life savings on fire because they have a decent hamburger recipe and a dream.

But franchises are a lot different. As long as you’re willing to suck it up and learn from the many before you, most end up earning pretty decent returns on capital — at least for the fanatical manager. It’s far less effective when you roll up a bunch of them.

A&W would be high on my list if I wanted to run a franchised restaurant. The overall operation has delivered solid same-store sales growth for years now. They do a lot of stuff well, including interesting new products, effective marketing, and delivering an excellent product. These combine to allow the average A&W to charge a little more than McDonalds.

A&W’s dividend took a bit of a step back during the pandemic, but the company has steadily increased dividends since. The current payout is 5.4%.

Mainstreet Equity Corp

20-year return: 20.25% CAGR$10,000 turned into $400,074

Mainstreet Equity Corp (TSX:MEQ) is an apartment owner with operations mainly clustered in Calgary and Edmonton, although it has expanded in recent years into places like Regina, Saskatoon, and the lower mainland in B.C.

CEO Bob Dhillon is one of the smartest operators I’ve come across, taking a very simple operating strategy and taking it seriously. Mainstreet focuses on smaller buildings (less than 100 units, and often 12-20 units) because they lack expensive elevators. These buildings are then fixed up and refinanced, usually at more than 100% of the original cost. And they maximize operational efficiencies by buying clusters of buildings close together.

In Western Canada alone Mainstreet figures there are about 200,000 apartments that meet its criteria, never mind any markets in Eastern Canada. I predict many years of growth ahead for the company.

There’s just one problem. It doesn’t pay a dividend, and likely never will. Dhillon prefers to retain all earnings and reinvest them into new buildings.

Cogeco

20-year return: 11.38% CAGR$10,000 turned into $86,377

Cogeco Communications (TSX:CCA) is another stock that, like Canadian Western Bank, has put up excellent long-term returns while also selling off to the point where I’d consider today’s price a nice entry point.

Shares have struggled lately as the company came out with weaker than expected 2023 guidance, telling investors that a recent acquisition in Ohio isn’t working out quite as well as hoped, at least so far. Shares have fallen some 15% since the announcement.

Cogeco shares are cheap, even after analyst expectations were ratcheted down. The company is projected to earn a little shy of $9 per share in 2023. The stock is currently around $68. That puts us at about 8x forward earnings expectations.

Despite warning investors about a weaker than expected 2023, the company also increased its dividend 10%, raising the quarterly payout to $0.776. That’s good enough for a 4.7% yield.

Note: you could buy Cogeco Cable (TSX:CGO) instead, if you want a pure-play cable asset. Cogeco Communications owns shares of Cogeco Cable and a smattering of radio stations. Cable shares have lagged lately, suggesting they may represent the better upside in the future.

The bottom line

Put it all together and $10,000 invested in each of these stocks 20 years ago turned into $1.76M. Not bad at all.

Time for some caveats. Yes, I’m aware past performance is no guarantee of future results. Some of these could crash and burn. And I only scratched the surface of these companies. They all deserve further research before you go and add them to your portfolio.

But the point is this. There are plenty of places to look that are somewhere in between the same 10 stocks every Canadian dividend investor owns and the far reaches of the TSX Venture. There’s excess returns hanging out in that sweet spot, and I intend to find it.

Disclosure: Author owns shares of Rogers Sugar, TFI International, A&W, and Cogeco Communications either directly or via accounts managed for family members