Is This Canada’s Most Defensive Dividend Stock?

Canadian National Railway Co. (TSX:CNR)(NYSE:CNI) is one of the most strongly diversified dividend stocks on the TSX. Here’s why else it’s a buy.

| More on:

Image source: Getty Images

With a likely recession underway in all but name, it’s time for investors to start thinking about the “three Ds” of emergency investing. Defensive, diversified, dividends: These are three key qualities that a long-term, low-risk investment portfolio should reflect right now.

Canadian National Railway (TSX:CNR)(NYSE:CNI) is a rare wide-moat play that accesses the best of our economy while providing reliable passive income. This single stock reflects this type of 3D investment strategy to a tee.

CN Rail is a key stock to buy and hold

Headquartered in Montreal, this highly defensive Class I freight railway is often touted as one of the best stocks on the TSX. CN Rail’s impressive network covers Canada as well as the Southern and Midwestern U.S.

But there are few investors, even would-be ones, who are unaware of CN Rail’s empire. What might not be so apparent, though, is just how diversified CN Rail’s business operations are.

This blue-chip name is a de facto play on the oil patch, for instance. While pure-play oil investing itself is a rapidly weakening strategy, an oil rally isn’t completely off the cards. So how to invest in an oil rally without upping the risk unduly in a TSX stock portfolio?

Consider CN Rail’s CanaPux system. This is a reduced risk play on the oil patch that uses CN Rail’s bitumen puck crude-by-rail system.

And how about that dividend? While a yield of 2% might not look like much at first glance, remember that CN Rail is not a name to be traded. This is a forever stock, which means passive income accumulation. A 2% yield on a substantial position in this powerfully defensive name could add up to a significant nest egg.

However, current billionaires have become disillusioned with airline stocks. Warren Buffett’s Berkshire Hathaway left itself exposed to the tanking industry this year. But the thesis for buying the bottom is still strong.

The trouble lies in knowing where the bottom is. The lockdown is producing a word devoid of air travel. But logically there must come a point when the pain is at its most severe.

Supply chains have become a hot topic in the current market. Contrarians are eyeing aerospace stocks for opportunities that match value for long-term recovery. Investors may want to sidestep aviation stocks altogether, though. A lower-risk play for transportation industry exposure might be rail.

Timing the bottom is a risky play, however. A stronger strategy might be to slowly build up a position by splitting the eventual number of desired shares into discrete packets. These packets of shares can then be snapped up as the share price decreases, lowering capital risk while growing a position at an eventual lower cost.

The bottom line

CN Rail is a strongly defensive, highly diversified stock that marries the best of the Canadian economy with steadily accumulating dividend payments. As such, the rail operator is a strong buy for a Tax-Free Savings Account (TFSA) or RRSP.

In summary, it’s a name to build during the down cycle and hold for the long term.

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 Victoria Hetherington has no position in any of the stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway.

More on Dividend Stocks

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Stocks to Hold for a Reliable Source of Passive Income

Are you looking for a way to produce a reliable source of passive income? Hold these three stocks!

Read more »

worry concern
Dividend Stocks

3 Stocks to Buy if You Are Worried About a Recession

There are a lot of safe investments that can help your portfolio remain afloat during a recession and the market…

Read more »

Two colleagues working on new global financial strategy plan using tablet and laptop.
Dividend Stocks

2 Canadian Dividend Stocks I Just Bought During the Selloff 

There are plenty of high-quality investments to consider today, but these two Canadian dividend stocks are easily among the best.

Read more »

Dividend Stocks

Top 3 Utility Stocks for Stability and Consistent Income

These utility stocks could continue to return cash, irrespective of the volatility in the market.

Read more »

edit Back view of hugging couple standing with real estate agent in front of house for sale
Dividend Stocks

Tradeoff: Lower Home Prices for Higher Debt Burden

Buyers welcome lower home prices but more rate hikes will increase their financial burdens.

Read more »

Dividend Stocks

1 Top REIT to Buy Amid Housing Price Cooldown

Consider investing in this Canadian REIT if you want to capitalize on the housing price cooldown right now.

Read more »

stock analysis
Dividend Stocks

TFSA Passive Income: 2 Oversold Dividend Stocks for Self-Directed Investors

These top TSX dividend stocks look cheap right now.

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

3 Under-$20 Dividend Stocks to Boost Your Passive Income

Given their stable cash flows and high dividend yields, these three under-$20 Canadian stocks can boost your passive income.

Read more »