The Motley Fool

1 Top Canadian Dividend-Growth Stock to Buy and Hold for 20 Years

Image source: Getty Images.

There’s a strong case for buying top Canadian dividend-growth stocks right now.

Those CPI (Consumer Price Index) numbers were truly awful, and investors should be keeping a close eye on inflation and rates. That said, don’t count on the Fed changing their policies anytime soon. The 4.2% bounce was worrisome, but it’s still too soon to tell if the Fed will be put between a rock and a hard place.

The Fed saw inflation coming, but they think it’ll be transitory. Now that inflation is here, investors are playing it safe, opting for value and dividend growth over tech. The CPI number north of 4% was much higher than expected. Still, there’s no need to panic or ditch your top stocks, as it’s unlikely that we’ll be doomed for the toxic combination of rate hikes and sub-optimal employment.

Canadian dividend-growth stocks could be the place to be!

In any case, I’d urge Canadian investors to consider picking up their favourite dividend-growth stocks if they’re feeling a bit too much pain from this year’s inflation-induced market sell-off.

Growth and tech stocks have soured, and some of the pricier, more speculative names could have much further to fall. That’s why it may be wise to consider old-fashioned dividend-growth plays like CN Rail (TSX:CNR)(NYSE:CNI) for your next purchase.

As inflation withers away the dollar’s purchasing power, it’s dividend-growth stocks like these that will help you stay ahead. Each name is poised to hike its dividend at an above-average annual rate. Their dividend yields may not be bountiful today, but over the next 20 years, they will grow into a payout that can help you finance a pretty rich passive-income stream. And, of course, for best effects, you’re going to want to stash such names in a TFSA (Tax-Free Savings Account), so your dividends won’t be taxed by the CRA (Canada Revenue Agency).

5 Stocks Under $49 (FREE REPORT)

Click here to gain access!

CN Rail: Staying ahead of inflation

CN Rail is a prime example of a truly wonderful business. Warren Buffett loves the railways, and if Berkshire Hathaway didn’t own BNSF (Burlington Northern Santa Fe) railroad, I’m sure he’d give the green light to the name. CN Rail has one of the widest moats on the planet. A competitor can’t just start its own railway, even if it had billions to pour into building one. There are too many regulatory hurdles, and the barriers to entry are just too high for any firm to go after a slice of CN’s economic profits.

With such a wide moat and incredible managers, you should expect to pay a premium price tag for the name. Little has changed about the business of railways over the last 20 years, and I expect the same thing for the next 20. I expect CN Rail to continue growing its earnings and dividend at a high single-digit rate. Anytime the stock pulls back, you should probably be a buyer, as CN Rail always finds a way to come roaring back in record time.

The stock currently sports a 1.8%-yielding dividend, which is poised to grow at a rate that’ll trounce inflation every year. So, if you are worried about an unchecked rise in inflation or rate hikes, CN Rail stock is a great place to be right now while it’s still fresh off of a correction.

What about the Canadian rail bidding war?

Investors may be worried that rich CN’s US$33 billion bid for Kansas City Southern could hurt shareholder value. While expensive, I don’t think the deal is as expensive as it could be, given the magnitude of the economic expansion that could be up ahead. Moreover, I think there’s also a high chance that CN will lose out to CP, given regulatory hurdles. If CP wins the bidding war, I suspect CN stock will bounce back in a hurry, recovering all of the ground lost in the latest correction.

Speaking of contrarian and value investing, check out these terrific picks curated by the team here at the Motley Fool!

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

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 Joey Frenette owns shares of Berkshire Hathaway (B shares) and Canadian National Railway. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Canadian National Railway. The Motley Fool recommends Canadian National Railway and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short June 2021 $240 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares).

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.