Better Dividend Buy: Canadian National Railway or Canadian Pacific Kansas City Stock?

Both CNR and CP stock are strong long-term holds, but which is the better buy for stable dividends?

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There is a lot to consider if you’re looking to buy either Canadian National Railway (TSX:CNR) or Canadian Pacific Kansas City (TSX:CP). But even if you’re only looking at the dividend, there is still so much going on for investors to watch for.

Today, though, we’re going to consider these companies as a whole. Whether CP stock or CNR stock is the better buy depends on their business as a whole, of course. So let’s get right into it.

CP stock

Now years past, CP stock was a Dividend Aristocrat with year after year of stellar dividend growth. Then, the company slashed its dividend! Why? To put the money to other good uses.

It’s now official, and you can see the combined moniker running down your local rail lines. CP and Kansas City Southern have become one and the same, with the company able to run from the tips of Canada down into Mexico. And this deal cost the company a pretty penny at US$31 billion.

So, of course, the company had to slice its dividend. That being said, CP stock is headed by a strong management team that remains in a solid financial position even now. But will investors see dividend growth like there was before? That’s going to take some time.

Right now CP stock offers a 0.72% dividend yield. That’s only risen slightly over the last few years after the company cut it in half. So I wouldn’t expect any huge growth in the near future at least.

CNR stock

CNR stock also wanted in on the Kansas City action, but unfortunately its attempts were denied after a heated battle. Yet investors were happy with the result, as the company now has plenty of cash on hand to make other exciting investments.

That being said, CP and CNR stock aren’t exactly happy with how the economy is performing, with interest rates weighing on company activity. Yet unlike CP stock, CNR doesn’t have a new investment on the books.

Even still, coming out of a potential recession could lead to renewed interest in acquisitions, which should see more activity. With that in mind, CNR stock believed it could achieve profit growth in the mid-single digit range in 2023.

So what about its dividend? Again, the company remains strong financially, so it shouldn’t have any trouble paying out the yield at 2.03%. Plus, that’s far higher than the one you’ll get from CP stock.

Bottom line

If you’re looking for growth, I would consider CP stock a great buy today. However, if it’s dividends you’re interested in, and growth in that area as well, CNR stock has to be the right choice. It too is a Dividend Aristocrat, and each share will add on $3.16 in passive income.

So while this year might be rocky for both stocks heading into and out of a potential recession, think long term. Both of these companies remain steady options that are only going to grow higher. Yet CNR stock at least has the benefit when it comes to a dividend buy on the TSX 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.

Fool contributor Amy Legate-Wolfe has positions in Canadian Pacific Railway. The Motley Fool recommends Canadian National Railway and Canadian Pacific Kansas City. The Motley Fool has a disclosure policy.

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