How diversified is your portfolio? Adding one or more defensive stocks to your portfolio isn’t only a solid way to counter volatility. Buying a recession-proof stock, particularly the right ones, can lead to years of solid growth and income generation. This is especially true if you are new to investing.
One such example to consider is Canadian National Railway (TSX:CNR)(NYSE:CNI).
What can a railroad realistically offer in 2021?
When we think about a railroad, images of long freight cars stretching into the horizon come to mind. Unfortunately, many of us associate that image with trying to get around the train, instead of what freight that train is hauling.
Canadian National is the largest railroad in Canada, hauling goods across a network that spans coast to coast and down through the U.S. Midwest to the gulf region. Access to the gulf coast is a unique factor that shouldn’t be summarily dismissed. Canadian National is the only railroad on the continent with direct access to three different coastlines.
So, Canadian National is huge. The railroad also hauls a lot of goods. Anything from automotive components, chemicals, crude oil, and grain to raw materials and finished products can be hauled. Collectively, the railroad hauls over $250 billion worth of goods each year to and from ports and storage warehouses across its vast network.
In other words, the necessity of the goods that they haul makes railroads some of the most defensive investments on the market. That’s just one reason why railroads such as Canadian National are often referred to as arterial veins of the North American economy.
This fact alone makes Canadian National an ideal recession-proof stock to add to your portfolio. But that’s not the only reason you should consider Canadian National.
Let’s talk growth: Is there still growth potential?
Canadian National recently tried to acquire one of its peer railroads, Kansas City Southern in a multi-billion-dollar deal. The deal raised concerns with the Surface Transportation Board (STB), which has been very anti-merger since a slew of mergers back in the 90s.
The proposed deal also raised concerns with investors who saw Canadian National as taking on too much debt in the deal. Needless to say, the deal never happened, and Canadian National can now move on to other initiatives.
One of those other initiatives to note is Canadian National’s dividend. The railroad currently offers a quarterly dividend that works out to a yield of 1.66%. While that may not sound like much, particularly when compared to other income stocks, Canadian National’s dividend is very appealing.
Specifically, the stock has provided investors with impressive annual dividend growth going back years. In short, buy it, hold it, and let it grow.
Time to bunker down with a recession-proof stock
While no stock is without risk, Canadian National really does shine as an investment during times of volatility. In case you haven’t noticed, both food and fuel prices are steadily creeping up. If the market does indeed tread towards a correction, placing a recession-proof stock like Canadian National (who could see a bump in revenue as a result) could be very helpful.
In my opinion, a small position in Canadian National should be a core holding in every well-diversified portfolio.
