As a general rule of thumb, small-cap stocks tend to grow at faster rates than large-cap stocks. That’s simply due to the law of large numbers. That’s a phenomenon that has been observed where growth rates tend to slow down as companies grow in size. Because of that, many investors choose to stay away from large-cap stocks. However, I think that’s the wrong way to go about it.
First of all, large-cap stocks offer many benefits. For instance, they tend to be very stable companies. That’s because they will have already proven themselves in the market. In addition, large-cap stocks tend to be leaders in their respective industries. That provides stability to the company. Finally, large-cap stocks tend to be much less volatile. That’s because there tend to be fewer question marks and surprises when it comes to these businesses.
In this article, I’ll discuss two large-cap stocks that investors shouldn’t overlook just because they’re everywhere.
Invest in this top stock
Founded in 1919, Canadian National Railway (TSX:CNR) may be one of the most recognizable names in the country. This company operates a rail network which spans from British Columbia to Nova Scotia. All considered, its rail network spans nearly 33,000 kilometres.
In my opinion, Canadian National Railway is intriguing for two reasons. First, its stock appreciation has been very impressive over the past five years. Over that period, investors have been treated to a return of nearly 45%. To put that into perspective, the TSX has gained only 23% over the same period.
In addition to its strong capital appreciation, Canadian National Railway has done an excellent job of distributing dividends to its shareholders. It has managed to increase its dividend distribution in each of the past 26 years. More importantly, Canadian National Railway’s dividend has grown at a compound annual growth rate of nearly 16%. That helps investors stay much ahead of the long-term inflation rate.
The Canadian banks are a great choice
Investors should also consider buying shares in one of the Big Five banks. This is a group of banks that have managed to build one of the most impressive moats in the country. Canada’s banking industry is highly regulated. That makes it difficult for smaller banks to disrupt the industry and displace the industry leaders. Because of that, I believe the Big Five banks will continue to grow and generate strong returns over the coming years.
If I could only choose one of the Big Five banks, it would be Bank of Nova Scotia (TSX:BNS). What impresses me about this company is its dedication to international growth. Bank of Nova Scotia has decided to expand into regions that are projected to grow very quickly over the coming years (e.g., the Pacific Alliance). In addition, Bank of Nova Scotia is an excellent dividend stock. First paying its shareholders a dividend in 1833, the company has never missed a payment since. That represents nearly 190 consecutive years of dividend payments.