Tourism spending in Canada was at about $15.7 billion in the first quarter of 2022, and only about 14% came from non-residents.
This broadens the asset pool of Canadian tourism stocks as we can also target businesses that cater to domestic tourists.
There is a lot of diversity within this industry, and if it’s an investment avenue you are interested in, this article can provide you with the information you need to get started on the best Canadian tourism stocks.
An Overview Of The Canadian Tourism Stocks
Tourism is a variety-rich sector that includes industries like travel (especially air travel), hoteling, recreational services, food establishments, and others. You can invest in Canadian tourism stocks by choosing publicly traded companies from these industries.
The tourism sector as a whole follows a seasonal pattern when the business is up in certain quarters and down in others. These cyclical financials may or may not reflect in the tourism stocks’ performance. Tourism stocks may be vulnerable to two elements:
- Airborne viruses like COVID or SARS. Both viruses decimated the travel industry, and as a natural consequence, the broader tourism sector and the stocks saw an unnatural decline.
- Financial crises like recessions. When people focus on saving money instead of spending it on leisure activities, travel/tour plans are usually the first to get cut.
Even in a financially stable market with no health epidemic threatening the sector, different tourism stocks may behave very differently.
This is a stark contrast to sectors like energy, when a consistent rise in oil prices pushes nearly all the individual stocks up. So evaluate the tourism stocks individually rather than following a presumed trend in the sector.
Pros and Cons of Canadian Tourism Stocks
- They offer unique growth and diversification opportunities.
- Diversity within the sector.
- External negative factors are easy to identify.
- Financials can be cyclical.
- Limited local tourism industry.
Best Canadian Tourism Stocks
These Canadian tourism stocks are from a variety of industries.
1. Air Canada Stock
Air Canada is the largest airline in Canada (and the flag carrier) which dominates both international and domestic air travel in the country, though WestJet is at its heel in domestic air travel. This dominance is its core strength. The airline also has a strong cargo wing, one business segment immune to threats like COVID.
It has an impressive fleet of over 300 aircraft flown under three names: Air Canada, Air Canada Express, and Air Canada Rouge.
The airline can become significantly more extensive and even more potent if it acquires some of its regional and or international competitors – a move it was ready to make before the pandemic hit.
Air Canada is one of the most prominent Canadian tourism stocks as it’s responsible for a lot of local and international tourist traffic. It also makes money from Canadians travelling outside Canada.
One of the most significant growth phases the stock went through in the last decade was between Sep 2012 and Jan 2020, when it rose by over 4,600%.
2. Chorus Aviation Stock
Chorus Aviation has various business activities, including airline operations through its Jazz business, an airline wing under Air Canada. Other Chorus aviation businesses include leasing air crafts to regional airlines and providing maintenance, parts, and other related services.
Despite this diverse range of underlying businesses, the stock can still go down when travel/tourism does because all of its customers also limit their operations.
Chorus Aviation was coveted as a dividend stock but suspended its payouts during COVID, as the operating income didn’t justify them.
The best growth phase for the stock was between Oct 2020 and March 2021 (about 137%), but it was driven by recovery, not strong financials, and business opportunities. It may not be a healthy pick from a capital appreciation perspective.
3. Transat Stock
Transat can be considered a relatively purer Canadian tourism stock as it’s an airline that focuses on national and international holiday travel. Since it focuses mainly on leisure travel, it’s a bit more vulnerable compared to other airline stocks supporting business and personal travel (apart from leisure).
But it has a strong presence as a leisure travel airline, with destinations in over 25 countries. It has also been crowned as the best leisure airline in the world for four consecutive years, which endorses its strength within its niche market segment. The airline has a fleet of about 31 aircraft.
One of the best growth phases the stock recently went through only lasted for about five months, pushing the value up by 250%, but it was driven by an external factor – an acquisition offer from Air Canada.
4. American Hotel Income Properties REIT Stock
- Market: TSX
- Ticker: HOT-UN.TO
- Industry Niche: Hotel Properties
- Forward Dividend Yield: 6.68%
- Dividend Payout Ratio: 81.88%
- Dividend Yield (12-Month Trailing): 2.03%
- Upcoming Dividend Date: Nov 15, 2023
- Market Cap: $59.96 Million
- Forward P/E Ratio: 19
The hotel industry is another crucial part of tourism, and American Hotel Income Properties offers you exposure to this market segment. As a REIT, the stock is cherished for its dividends as its yield is usually healthy.
It’s unremarkable from a growth perspective though it can grow under the right circumstances, as it did between Mar 2020 and May 2021 (over 200%).
It’s different from most Canadian REITs as it has an entirely US-based portfolio consisting of 76 hotels in 50 US cities. These hotels are leased to major names like Marriot, Hilton, and IHG.
One of the most significant blows this or any other hotel business has faced in the last few years was the rise of Airbnb. But it’s not a recent disruption, and if the stock keeps improving its financials quarter after quarter (in a healthy market), you may be reasonably sure about the sustainability of the dividends.
5. GameHost Stock
- Market: TSX
- Ticker: GH.TO
- Industry Niche: Hospitality and Gaming Properties
- Forward Dividend Yield: 4.38%
- Dividend Payout Ratio: 16.98%
- Dividend Yield (12-Month Trailing): 3.93%
- Upcoming Dividend Date: Dec 15, 2023
- Market Cap: $197.38 Million
- Forward P/E Ratio: 9.23
GameHost is an Alberta-based company with a portfolio of hospitality and gaming properties (casinos and inns). There are five properties in the portfolio, all in Alberta, three of which are casinos.
Gamehost’s business model is geared more towards local tourists than foreigners, but that’s mostly because Canada is not a popular gambling destination.
This lends it relatively more financial stability than tourism businesses that focus more on tourists from the outside, which reflects in the stock as well. But even though it may offer decent growth in the right circumstances, the stock is a smart investment from a dividend perspective and not for capital appreciation.
6. TWC Enterprises Stock
- Market: TSX
- Ticker: TWC.TO
- Industry Niche: Golf Courses
- Forward Dividend Yield: 1.19%
- Dividend Payout Ratio: 2.26%
- Dividend Yield (12-Month Trailing): 1.19%
- Upcoming Dividend Date: Dec 15, 2023
- Market Cap: $411.46 Million
Golf has a relatively tenuous connection with the tourism industry as a whole, but people travel for and engage in this sports activity and may even go for professional tours.
It’s the largest owner and operator of golf courses in Canada and has 37 locations in two Canadian provinces (Quebec and Ontario) and one US state (Florida). This status gives it a strong edge.
Golf is already different from other tourism stocks on this list because it has a relatively more stable business model and a steady clientele.
It pays dividends, but the yield is rarely high enough. It offers modest, long-term growth, as evident from its 140% appreciation between Aug 2012 to Aug 2022.
7. Clarke Stock
Clarke is a Nova Scotia-based investment company that is counted among the Canadian Tourism stocks because of two out of three investments – a hotel business and a ferry service company.
The hotel business under the name Holloway Lodging has a portfolio of 16 hotel properties with over 2,000 rooms. The ferry service, while not exclusively a tourist business (as it also carries cargo/cars), can be considered a service provider to the industry.
An exemplary growth phase of the stock was between Mar 2019 and July 2014, which resulted in a market value appreciation of over 480%. Also, since it’s an investment company, its exposure to tourism may change in the future, i.e., become more tourism-centric or less.
Should You Invest In Canadian Tourism Stocks?
You can give Canadian Tourism Stocks a shot if you:
- Have adequate risk tolerance.
- An understanding of individual segments of the tourism industry.
- Are looking for exposure to the leisure market.
- Can make timely exit decisions if factors threatening the tourism industry as a whole are in play.
Canadian tourism stocks may offer market-beating returns in the right circumstances, but as they are cyclical in nature and there is a lot of variety within the tourism industry, many beginner investors might find them relatively challenging.
But if you are willing to conduct the necessary research and have enough risk tolerance, they can be worth considering.
If you can’t find the right dividend payers for your portfolio among Canadian tourism stocks, these dividend aristocrats might offer a better fit.