Attention Millennials: Does This Top Stock Belong in Your RRSP?

Canadian National Railway Company (TSX:CNR)(NYSE:CNI) is a popular pick, but is it good for young investors?

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Young people are under serious pressure to save for retirement.

In the old days, Canadian college and university grads could find a decent full-time job right out of school, and many companies offered pension plans.

If you stayed with the same firm for your entire career, there was little need to set aside extra funds because the company pension combined with the CPP and OAS payments would generally be enough to cover retirement expenses.

Today, Canada is a very different place. Full-time, non-contract work is hard to find, and pensions of any sort are becoming increasingly rare. People also switch companies and industries more frequently. This can bring higher earnings or more satisfying work, but it also tends to shift the responsibility of retirement planning onto the individual.

Fortunately, there are relatively stress-free ways to invest for the future.

One strategy involves purchasing dividend-growth stocks in an RRSP and reinvesting the dividends in new shares. The advantage of using the RRSP is that it tends to offer more contribution room than a TFSA, and investors are less likely to tap in to the reserves when a need arises for some extra cash.

If the investment is left to compound long enough, a small initial contribution can grow into a substantial nest egg.

Which stocks should you buy?

The best companies have long track records of dividend growth that are supported by rising revenues. The also tend to operate in industries with limited competition and high barriers to entry.

Let’s take a look at Canadian National Railway Company (TSX:CNR)(NYSE:CNI) to see why it looks like a solid pick.

CN is one of those companies you can simply buy and forget about for decades. The railway is widely cited as the most efficient operator in the industry and is the only rail company in North America that can offer access to three coasts.

As international trade continues to expand, this competitive advantage becomes very important.

CN is currently working its way through a challenging economic environment, but the results are still impressive. The company just reported Q1 2016 net income of $792 million, which is up 13% compared with the same period last year.

The oil rout has had an impact on revenues connected to the energy sector, but the low value of the loonie is boosting demand in other segments, such as forestry and automotive. At the same time, profits earned south of the border are currently more valuable when converted to Canadian dollars.

Good times will come and go, but the profit train at CN just chugs along.

CN raised its dividend by 20% earlier this year, and investors have enjoyed an average annual increase to the payout of 17% over the past two decades.

The returns?

A single $10,000 investment in CN just 15 years ago would now be worth $111,000 with the dividends reinvested.

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 Andrew Walker has no position in any stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Canadian National Railway is a recommendation of Stock Advisor Canada.

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