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The Canadian stock market showed a spirited performance on Thursday morning (November 9). The TSX Composite Index had gained almost 1.2% by mid-day, as it added some 229 points. However, markets remain volatile. Investors looking to deploy new capital in November may wish to check out steady Canadian blue-chip stocks for their proven track records and promising upside before taking on too much capital risk.
Blue chip stocks are industry leaders with proven business models serving well-established markets and usually boast of an established history of delivering positive returns to investors. Notably, their total returns are amplified by regular dividends. Canadian Natural Resources (TSX:CNQ) and Constellation Software (TSX:CSU) are blue-chip stocks to buy in November for enticing reasons. Let’s have a look.
Canadian Natural Resources stock
Canadian Natural Resources is a $95 billion Canadian oil and gas industry leader with more than five billion proven and probable reserves that could last beyond a generation. The cash-rich business is soon to reach a key milestone that will unlock cash flow windfalls for its stock investors.
The blue-chip company boasts a low-cost, long-life, and low-decline oil and gas resource base that could sustain its current production rates for 32 years. If the world continues to demand oil, CNQ stock may persistently return more capital to shareholders through share repurchases and dividend raises, generating immense returns to its shareholders. CNQ stock has produced 300% in total investment returns over the past 10 years.
The company’s commitment to increasing cash flow distributions to shareholders, as its net debt reaches a pre-set target of $10 billion, is a near-term, value-enhancing catalyst. Net debt declined to $11.5 billion by September this year. In an earnings update this month, management expects to reach the target by the first quarter of 2024. The company will disburse 100% of its free cash flow (calculated after dividends and base capital investments) to shareholders, up from 50% currently.
It produced $2.7 billion in free cash flow during the third quarter of 2023, and Canadian Natural Resources raised its quarterly dividend this month by 11% to $1 a share, marking 2024 as the 24th consecutive year of dividend increases on CNQ stock. The Dividend Aristocrat is powering ahead nicely.
The blue-chip oil sands stock keeps delivering impressively, and oil prices are cooperating nicely. Dividend growth and amplified share repurchases may richly reward Canadian Natural Resources shareholders in 2024 and beyond.
The new CNQ dividend should yield 4.6% to investors who buy shares at current prices under $88 a share in November 2023.
Constellation Software stock
Constellation Software is a rare gem of a Canadian blue-chip stock in the technology sector that has exhibited unparalleled stock price stability and sustained share price growth year over year. The $62.5 billion company is a testament that an acquisitions-led growth strategy can deliver handsome returns if management has a finetuned skillset to acquire promising small rivals and integrate them into a fledging blue-chip enterprise.
Constellation Software has gained 39% in value so far this year, and CSU stock remains on a consistent winning streak that has generated more than 1,500% in total returns to investors over the past decade. At the heart of Constellation Software’s success is its strong ability to generate positive free cash flow from a smorgasbord of more than 500 software businesses service private and public entities globally.
The company grew its cash balances from US$676 million in June 2022 to more than US$970 million by June this year, while closing customary acquisitions during the 12-month period. The business keeps replenishing its cash pile — the dry powder it uses in enlarging its empire and building wealth for its stock investors.
Bay Street analysts project a 34% surge in Constellation Software’s annual free cash flow to over US$2 billion (CA$2.75 billion) on revenue of US$9.7 billion (CA$13.4 billion) in 2024. Revenue may grow by 17.6% next year.
Constellation Software stock looks fairly priced in November with a forward market cap to free cash flow multiple of 20.8, which is below that of similarly valued competitors, including Workday with a multiple of 37.3, Roper Technologies (26.4), and Palantir Technologies with a free cash flow multiple of 76.