For defensive investors, these past few years have not been encouraging. While there has been plenty of coverage about high-flying tech stocks, cannabis upstarts and “crypto mania,” positive stories about more low-key investments have been hard to find.
True, there is plenty of general advice out there counselling investors to stick with index funds and bonds. But for the defensive investor who’s looking to pick stocks, there’s not much inspiration to be found.
In this article I’ll be sharing what I consider to be a great Canadian stock for investors who don’t want too much risk. This stock has a low P/E ratio. It pays a dividend. And despite great value metrics, it has also been experiencing strong earnings growth.
The stock in question?
CN is one of Canada’s oldest companies. Founded in 1918, it has since grown into a railroad behemoth. Among its major investors is Bill Gates, who has seen his investment triple since 2011.
Aside from the vote of confidence from a very well-connected billionaire, what does CN have going for it? We can start with the valuation.
Dirt cheap valuation
CN is priced very cheaply right now. It has a trailing P/E of about 14, while Thomson-Reuters projects a forward P/E ratio of 18. These figures are not insanely low. However, they are promising when we look at the company’s earnings growth.
Strong earnings growth
As of the most recent reports, CN is growing its income at 27.10% year-over-year, while revenue is growing at about 9%. These are solid figures; the fact that earnings growth exceeds revenue growth indicates that the company managed to keep costs under control.
Notably, the most recent quarter’s solid growth came after a “challenging” winter during which net income declined by 16%.
A final feature of CN’s stock that might be of interest to investors is its dividend. The stock pays annualized dividend that works out to $1.82 per share. That gives us a 1.61% yield, which isn’t jaw-dropping, but it’s nothing to sneeze at either.
The quarterly dividend has increased from $0.38 in 2016 to $0.46 today.
CN is one of Canada’s oldest and most respected companies, an established business with tracks not only in Canada, but also as far south as New Orleans. The stock is priced cheap right now despite strong earnings growth and steady stock performance.
The dividend gives investors an extra incentive to consider this stock.
If you’re looking for a stock that’s not too risky, I’d highly recommend Canadian National Railway. The combination of cheap valuation, strong growth and income make it almost a no-brainer.
This company is not immune to setbacks, as the winter of 2018 showed us. But on the whole, it’s one of the best stocks on the TSX.
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 Button has no position in any of the stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. CN is a recommendation of Stock Advisor Canada.