1 Top Canadian Stock to Buy for Your RRSP

RRSP investors still need to find a few Canadian stocks at cheap prices.

| More on:
Piggy bank next to a financial report

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Investors are constantly searching for top Canadian stocks to add to their RRSP portfolios. The overall TSX Index looks expensive right now, but a few industry leaders currently appear undervalued.

Best stocks for RRSP investments

The best stocks to buy for an RRSP tend be companies that provide essential services or products. They are often market champions and grow revenue along with the expansion of the broader economy.

Look for businesses that generate strong free cash flow and have a good track record of returning profits to investors through increased dividends and share buybacks. This normally results in a steady rise in the share price over the long haul.

Canadian National Railway

CN (TSX:CNR)(NYSE:CNI) had a nice run off the 2020 market crash low. The stock rebounded from $99 per share in March 2020 to $148 in April 2021. Since then, the share price has been under pressure. At the time of writing, the stock trades at $133.

The drop occurred as a result of CN’s US$30 billion bid to buy Kansas City Southern. Some analysts think the price is too high after CN offered 20% more than Kansas City had agreed to accept from CN’s smaller rival, CP Rail.

The deal has to clear regulatory hurdles. In the event the government authorities kill the agreement, CN would be out US$700 million it gave to Kansas City Southern to cover a break fee with CP Rail.

CN says 1,750 letters of support have been sent to the Surface Transportation Board (STB) in the United States. CN hopes the STB will approve a proposed voting trust structure and eventually allow the two firms to combine.

If successful, the two companies would create a rail network that runs from Canada to Mexico.

CN stock price outlook

Uncertainty around the deal has kept CN stock from extending its rally, and ongoing volatility should be expected until the STB provides its final approval or rejection.

The dip in CN’s share price gives investors a great opportunity to pick up a top Canadian stock at a cheap price. If the deal goes through, CN becomes a leading player in the NAFTA trade network, and the share price should soar.

In the event the takeover is blocked, CN simply remains a very profitable business that directly serves Canada and the United States connecting three coasts. In this situation, the stock should start to drift back up to the 2021 high.

Dividends

CN generates enough cash flow to cover the capital investments needed to meet growing demand for its services. The company also has enough cash left over to pay dividends. In fact, the compound annual dividend-growth rate since the company went public is about 15%. That’s one of the best dividend-growth track records in the TSX Index.

The bottom line on RRSP investing

Owning top dividend stocks and using the distributions to buy new shares is a proven strategy for building retirement wealth. CN is a great example. A $10,000 investment in the stock when it went public would be worth more than $450,000 today with the dividends reinvested.

There is no guarantee the stock will deliver the same results over the next two decades, but CN still deserves to be a core RRSP holding, and the stock price looks cheap today.

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 recommends Canadian National Railway.  Fool contributor Andrew Walker owns shares of Canadian National Railway.

More on Investing

Hands holding trophy cup on sky background
Investing

3 Growth Stocks That Could Be Huge Winners in the Next Decade and Beyond

Here are three top TSX growth stocks that may be worth a look, given the significant valuation declines these stocks…

Read more »

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

Why Real Estate Stocks Are a No-Brainer Addition to Your Portfolio

Real estate stocks, especially REITs, offer some distinct advantages over other types of stocks, making them must-have additions to most…

Read more »

Man data analyze
Stocks for Beginners

Beginners: 2 Market-Beating Stocks Just Getting Started

Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) and Constellation Software (TSX:CSU) are proven market beaters that could continue their ways.

Read more »

oil and natural gas
Energy Stocks

Small OPEC+ Oil-Output Hike: Buy More Energy Stocks?

Energy stocks could soar higher, because oil markets will remain tight due to the small production increase by OPEC+.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Top TSX Dividend Stocks to Buy for Monthly Passive Income

Top TSX stocks with monthly dividends now trade at cheap prices for investors seeking passive income.

Read more »

edit Person using calculator next to charts and graphs
Investing

Where to Invest $500 in the TSX Right Now

Long-term investors can look to buy stocks, including Suncor Energy and Shopify, as they are poised to outpace the broader…

Read more »

Canadian Dollars
Dividend Stocks

Create Free Passive Income and Turn it Into Thousands With 1 TSX Stock

If you can't afford to invest, you can certainly create passive income another way and use that to invest in…

Read more »

falling red arrow and lifting
Investing

2 Oversold TSX Stocks That Should Bounce Back

Stocks that are oversold without an external catalyst like a market crash or a weak sector might be risky buys,…

Read more »