Canadian Pacific Railway Limited: 1 Dividend Stock for the Next 100 Years

Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP) is one stock to buy and hold forever.

| More on:
The Motley Fool

Here’s a little secret business pundits don’t want you to know…

While sexy startups tend to garner most of the headlines, these firms are rarely the ones that make investors the most money. Rather, the most successful companies tend to be downright boring. These business often deliver products and services that you probably use everyday.

I like to call these companies my “Forever Stocks”. Unlike exotic mining firms, Forever Stocks don’t have to find the next big gold strike in the Congo. And in contrast to some financial companies, Forever Stocks don’t deal in “collateralized debt swaptions” or other financial gibberish.

Rather, Forever Stocks are ingrained into our day-to-day lives. In some cases, these companies have remained virtually unchanged for generations. And that has allowed them to crank out consistent dividends to shareholders for decades.

Take Canadian Pacific Railway Limited (TSX: CP)(NYSE: CP), for example. The company has been a leader in freight transit for almost a century, and its status as a Forever Stock comes from a few key points:

First of all, the economics of the rail industry give it a big cost advantage. Today’s trains can move a ton of freight more than 400 miles on a gallon of diesel — that’s almost four times more fuel-efficient per ton-mile than trucking. When your biggest rival can undercut you to that degree, it’s awfully hard to steal market share.

Second, CP owns an irreplaceable asset. The company’s network of track spans 22,500 kilometres coast to coast. Almost all of these lines were laid over a century ago when there was plenty of cheap land to build on.

Today, that’s no longer the case. New tracks would require the buyout of every landowner along the proposed route. Not to mention it would have to go through a long regulatory approval process. That’s why there have been almost no large railroads built in decades.

In the same way a moat protected castles from attackers, these competitive advantages protect the company from competition. Chances are, you still couldn’t compete against CP even if you had $10 billion to spend. This has allowed the firm to crank out big returns on capital year after year.

For shareholders, this has all translated into steady dividends. Since going public, the railroad operator has hiked its quarterly payout between $0.02 and $0.04 per share almost every year. Those increases may seem rather puny in isolation, but they add up to some hefty gains for shareholders.

Can CP keep the dividend hikes coming? Over the next 100 years, there’re going to be more people living in this country. And over time, those people are going to demand ever greater quantities of goods. Rail will play a critical role in moving those products around the country. That’s why it deserves a permanent place in your portfolio.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul has no position in any stocks mentioned.

More on Dividend Stocks

Payday ringed on a calendar
Dividend Stocks

TFSA Monthly Money: How to Generate Consistent Tax-Free Passive Income

Adding these two attractive Canadian dividend stocks to your TFSA now could help you earn reliable monthly passive income for…

Read more »

analyze data
Dividend Stocks

3 Magnificent TSX Dividend Stocks to Buy and Hold Forever

Do you want to hold some quality dividend stocks for the decades ahead? Here are three stocks worth holding for…

Read more »

Dividend Stocks

How Much Will Canadian Utilities Pay in Dividends This Year?

Investors can stabilize their long-term stock portfolio returns by accumulating quality utility stocks on meaningful dips.

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

The 3 Top Canadian REITs to Buy in May 2024

These REITs in strong sectors are well-positioned to deliver passive income through regular dividend payments.

Read more »

Family relationship with bond and care
Dividend Stocks

Dividend Investors Can Earn $500 Every Month or More With the Right Stock Offering a 6% Yield

Two high-yield monthly income stocks are attractive options for dividend investors, including retirees.

Read more »

Question marks in a pile
Dividend Stocks

Down 14%: Is This Toymaker Stock a Good Buy in MAY 2024?

The right time to buy a discounted stock can be difficult to pin down, especially when there are no clear…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

2 Dividend Stocks That Could Create $2,484.40 in Passive Income in 2024

These two passive-income stocks offer not just dividends but returns as well! And should continue to do so for at…

Read more »

lab worker inspects test tubes
Dividend Stocks

Time to Pounce: 2 Ultra-High-Yield S&P 500 Dividend Stocks That Are Screaming Buys Right Now

More than a dozen S&P 500 components sport "ultra-high yields." Two of these time-tested titans are begging to be bought…

Read more »