The recent drop in the stock market is giving RRSP investors a chance to scoop up some top companies at reasonable prices.
Buying shares when the rest of the market is selling takes a bit of courage, but history suggests that adding top-quality dividend stocks to your portfolio when the market corrects can give the retirement fund a solid boost over the long run.
CN has had a rough ride in recent months. The stock took a hit in late 2019 when a week-long strike disrupted operations. The share price fell from $124 in September to $112 in October. After the strike ended, the stock price recovered, climbing as high as $127 in early February.
Since that time, pipeline protesters have set up blockades across the country on rail lines, forcing severe disruptions on CN’s network. In addition, concerns about the economic impact of the coronavirus outbreak have investors wondering if a recession could be on the way, which would likely impact demand for CN’s services.
At the time of writing, CN trades at nearly $115 per share at writing. It was as low as $112 in recent days. While ongoing volatility should be expected in the near term, CN is starting to appear attractive.
The company is very profitable, generating significant free cash flow to support share buybacks and generous dividend increases. The board raised the payout by 7% for 2020 and the compound annual dividend growth rate since 1996 is about 16%.
A $10,000 investment in CN 20 years ago would be worth more than $270,000 today with the dividends reinvested.
Enbridge trades at $51.50 per share at the time of writing, up from a low of $48 it hit a few days ago, but still off the $57 high we saw in the first half of February.
The company is an important player in the efficient functioning of the Canadian and U.S. energy sectors. Enbridge transports 25% of the crude oil produced in the two countries and 20% of the natural gas used in the United States.
In addition, Enbridge has natural gas distribution businesses that serve 3.7 million residential and commercial customers in Ontario. The company’s renewable energy assets include wind, solar, geothermal, and hydroelectric facilities.
Enbridge’s revenue primarily comes from regulated businesses, meaning that cash flow should be reliable and predictable. Acquisitions and capital investments drive growth. Enbridge is targeting capital investments of $5-6 billion per year beyond 2020.
Long-term earnings and cash flow growth should be 5-7% per year and the board intends to raise the distribution along those lines. The current dividend provides a 6.3% yield.
Enbridge has provided shareholders with a 16% annualized compound total return over the past 25 years.
Is one a better bet?
CN and Enbridge should both be solid buy-and-hold picks for a dividend-focused RRSP portfolio. The share prices have pulled back enough that I would probably split a new investment between the two companies today.
If you are an income investor searching for reliable high-yield stocks, Enbridge deserves to be on your radar.
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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.
The Motley Fool owns shares of and recommends Canadian National Railway and Enbridge. Fool contributor Andrew Walker owns shares of Enbridge.