Three Reasons Why Canadian Investors Must Invest Abroad

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The Canadian equity market is one of the largest markets in the world. According to TSX, the total market capitalization of companies listed in the TSX and TSX Venture Exchanges was $5.0 Trillion as of 2024. A total of 3,417 companies were publicly traded on these exchanges. For Canadian investors it may seem like the home market is more than enough to find attractive opportunities. However that is not the case. I have written about why Canadian investors must diversify globally earlier. This is a followup quick post on the topic.

Three reasons why investors in Canada must invest overseas are:

  1. The Canadian equity market represents less than 3% of the world’s market capitalization based on MSCI World Index at the end of 2024.
  2. Of the Top 500 companies the world, only 14 are in Canada.
  3. About 75% of the market is concentrated in just 4 sectors – Financial Services, Energy, Industrials and Materials. Globally these sectors account for only about 35%.

Source: 2025 Investing Quick Reference Guide, AGF

The S&P/TSX composite index has had a return of over 29.41% on price return basis (C$) as of Dec 26, 2025. The following chart shows the concentration of the four sectors in the index as of Nov end, 2025:

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Source: S&P

From a return perspective, it is possible to earn higher returns investing abroad. For example, Canadian stocks returned 21.65% in 2024 while US equities returned 36.36% in Canadian dollar terms. There were many other countries that generated even better returns.

Overview of Canadian Government Spending 2024-25: Infographic

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The Canadian government spends a substantial portion of the annual budget on social protection, education and healthcare. Defense accounts for small percentage of the overall spending. According to the latest date published by Statistics Canada, defense spending increased by over 13% in 2024-25 on a per capital basis. Provincial and local governments spent twice the amount on health care relative to the amount spend on education.

The following infographic shows an overview of government spending by function for 2024-25:

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Source: Statistics Canada

Checkout also: Canada fact of the day, The Marginal Revolution

A Look at the Returns of Railroad Stocks Year-to-Date

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The S&P 500 is up by 16.45% YTD on price basis. Many sectors have performed extremely well this year. Let’s take a look at the returns of the Class I railroad stocks in this post. The best performing railroad so this year is Norfolk Southern(NSC) which has soared by about 25% based on just price appreciation. This amazing growth came on the heels of its merger proposal with competitor Union Pacific(UNP). The deal has still get all the approvals by the relevant regulators. The worst performing railroad is Canadian National Railway Co (CNI) with a loss of 5.50% YTD.

The following chart shows the YTD price returns of major railroads:

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Source: Google Finance

Note: Returns noted are as of Nov end, 2025.

Related Stocks:

  1. Canadian National Railway Co (CNI)
  2. Canadian Pacific Railway Ltd(CP)
  3. CSX Corp (CSX)
  4. Union Pacific(UNP)
  5. Norfolk Southern Corp(NSC)

Disclosure: Long CSX, CNI, NSC and UNP

When Dividend Grows Stock Price Follows: An Example

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One of the simplest ways to build wealth in equity investing is to invest in dividend stocks especially dividend payers that grow the dividend rate each year consistently. Dividends provide a stable income stream and the power of compounding with reinvestment usually leads to astonishing returns over many years. I have written many times about the importance of dividend growers in a well-diversified portfolio in the past. Some of those articles are listed below:

When the Dividend Grows the Stock Price Follows: A Case Study

On The Astonishing Power of Dividend Growers: Three Case Studies

Why Dividend Growers Are More Important To Total Returns Than Dividend Payers

Multiple Expansion or Dividend Growth: Which is the Main Driver of Long-Term Equity Returns ?

On The Importance Of Dividend Growth To Long-Term Returns

In the first post above, I quoted the example of Procter & Gamble (PG) as an excellent dividend grower. P&G’s annual dividend growth rate was 8.5% and the annual stock price growth rate was 10.5% from 1980 to 2020.

I recently came across an article that showcased the dividend growth strategy with another example. The Jen Nurick and Josh Veltman of DivGro discussed the strategy with hardware retailer Lowe’s Companies(LOW) as an example. From the article:

While rates of change in dividends and share prices have been shown to ultimately synchronise, they traverse distinct paths with inherently obverse emotional experiences. The fast-rising dividend-growth staircase provides the opposite of an amygdala hijack. It offers microdosed anticipation: regular boosts of positive data points that fortify investor mindsets and prime us for long-term success. Plus, unlike other metrics, which may be massaged, dividends are paid in cash and are extremely telling; cut or increased, consistent or sporadic, fast or slow growing, they open a window into a company’s health span. If volatile prices can engender our fight-or-flight response, think of rapidly rising, consecutive dividend-growth updates as brain fertilisers, arming investors with enough emotional scaffolding to stay the course and enjoy the benefits of compounding.


This approach has roots at MIT, where Professor Myron Gordon and his team demonstrated that over time and at points in time, where the dividend goes, share price follows. For example, if one can identify a company that will raise its dividend annually at 13% for the long arc of time, one should expect its share price to appreciate at an approximately commensurable rate.

Source: The ultimate investing hack: dividend growth stocks by Jen Nurick, Josh Veltman at DivGro via FirstLinks

The above-linked article is worth a read.

Investors interested in dividend growth stocks can use the examples of P&G and Lowe’s Companies to identify additional potential candidates for investment.

Disclosure: No positions

The Top 10 Companies in the World by Market Cap

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Nvidia (NVDA) recently became the world’s valuable company by market capitalization beating tech giant Microsoft(MSFT). Of the top 10 companies in the world by market cap, 8 are American as the table below shows. The only two companies from outside of the US in this list are Taiwanese semiconductor giant Taiwan Semiconductor Manufacturing(TSM) and Saudi oil major Saudi Aramco.

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Source: Companiesmarketcap.com

Another interesting point to note is that except Saudi Aramco and Berkshire Hathaway the rest of the companies are in the tech sector.It remains to be seen if the AI wave will further propel these stocks to even higher market caps.

Disclosure: No positions