Canadian National Railway (TSX:CNR) and Fortis (TSX:FTS) have good track records of dividend and share-price growth. Investors searching for high-quality stocks that can deliver solid total returns inside their self-directed Registered Retirement Savings Plan (RRSP) portfolios are wondering if CNR stock or Fortis stock is good to buy today.
Canadian National Railway
CN (TSX:CNR) has a vast network of rail lines that connects the Pacific and Atlantic Coasts of Canada with the Gulf of Mexico in the United States. The company serves an important role in the smooth operation of the North American economy by transporting commodities and finished goods from producers to ports for export and from internal and overseas suppliers to domestic customers.
CN trades near $157 per share at the time of writing. The stock caught a nice bounce in the past week or so from $147 but is still down from the $173 it reached late last year.
Volume growth relies on the expansion of the North American and global economies. The sharp rise in interest rates in Canada and the United States over the past year could cause a recession as the U.S. Federal Reserve and the Bank of Canada try to bring inflation back down to 2% from highs around 8% in 2022.
There is a risk that the central banks will keep rates too high for too long and send the economy into a severe contraction. If that happens, CN could see demand for its services slow down, and that would impact revenue and profits.
For the moment, economists broadly expect a recession to be mild and short, if one occurs.
Buying CN stock on dips has historically proven to be a savvy move for patient investors. The board has increased the payout every year since CN went public in the 1990s. The current distribution provides a 2% dividend yield.
A $10,000 investment in CN stock 10 years ago would be worth about $36,000 today with the dividends reinvested.
Fortis
Fortis raised its dividend in each of the past 49 years. That’s the kind of consistency that RRSP investors should look for if they plan to sit on their holdings for decades.
Fortis is a utility company with $64 billion in assets located across Canada, the United States, and the Caribbean. The company gets 99% of its revenue from rate-regulated businesses, including power generation, electric transmission, and natural gas distribution. This means cash flow tends to be predictable, which helps Fortis plan investments.
The company is working on $22.3 billion in capital developments, which will increase the rate base from $34 billion to $46 billion over five years. The resulting increase in revenue should support planned dividend hikes of 4-6% per year.
At the time of writing, Fortis trades near $56.50 compared to a 2022 high of around $64. The current dividend yield is 4%. A $10,000 investment in Fortis 10 years ago would be worth about $27,000 today with the dividends reinvested.
Is one a better pick?
CN has delivered better total returns over the past decade. Fortis is likely the safer pick in the medium term if you are of the opinion that the economy is headed for some serious trouble. At the current prices, I would probably split a new RRSP investment between the two stocks.
