Better Buy: Canadian Pacific Railway Stock or Canadian National Railway Stock?

Are you thinking of adding a railway stock to your portfolio? Find out which company I think is the better buy!

| More on:
rail train

Image source: Getty Images

Canada offers investors many outstanding industrial companies to hold in their portfolios. Among the top of the list of industrial companies, we can find Canadian Pacific Railway (TSX:CP) and Canadian National Railway (TSX:CNR). These are two of the most well-known companies in Canada, with businesses operating from coast to coast. In this article, I’ll discuss which of these two stocks could be the better buy today.

A bit of background on both companies

Canadian Pacific Railway (currently known as Canadian Pacific Kansas City Limited after the April 2023 merger) was originally founded in 1881. It is the first and only railway company that operates tracks in Canada, the United States, and Mexico. Altogether, Canadian Pacific’s railway network spans approximately 32,000 km.

Canadian National Railway, however, was founded in 1919. This company operates tracks that span from British Columbia to Nova Scotia. It also operates in select areas of the United States, venturing as far south as Louisiana. All accounted for, Canadian National Railway’s network spans about 33,000 km.

Taking a look at stock performance

This year hasn’t been the greatest for either stock. Looking at Canadian Pacific first, we can see that its stock has fallen about 3.6% year to date. While that may not be the worst performance out there, it’s certainly not something prospective investors would hope to see. However, it’s important to note that year to year, even the best stocks may experience rough stretches. Looking at the past five-year performance of this stock, investors can see that it has gained about 89% over that stretch.

Canadian National Railway, on the other hand, has fallen about 10.9% so far this year. Likewise, its five-year performance appears much better, coming in at a gain of 30.5%. In both cases, the two railway companies have managed to beat the TSX by a decent margin. However, if you’re interested in pure gains on the stock market, Canadian Pacific is by far the clear winner.

What about the dividends paid by each company?

These two companies are excellent dividend stocks. Again, starting with Canadian Pacific, we can see that the company has managed to pay shareholders a dividend since 2001. Over the years, Canadian Pacific has managed to implement many dividend raises. However, it last raised its dividend in 2020. That should be a cause for concern if you intend to hold this stock in your portfolio for its dividend. A stock that can’t continually raise its dividend could result in investors losing buying power over time.

Canadian National Railway, however, is much more impressive when it comes to dividend payments. This stock has managed to increase its distribution in each of the past 27 years. That makes it one of the most impressive Dividend Aristocrats in the country. Over that period, Canadian National Railway’s dividend has grown at a compound annual growth rate of 15.4%. That outpaces the inflation rate by a very wide margin.

The verdict

The better buy in this case depends on what you’re looking for in a stock. If you’re interested in a stock that could generate impressive capital appreciation, then Canadian Pacific could be the stock for you. However, if you want a solid and reliable dividend, then Canadian National would be better for your portfolio.

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 Jed Lloren has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway and Canadian Pacific Kansas City. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Technology
Dividend Stocks

10 Years From Now, You’ll Be Glad You Bought These Magnificent TSX Dividend Stocks

The TSX is lucrative to buy these magnificent dividend stocks in bulk and be proud of this decision 10 years…

Read more »

calculate and analyze stock
Dividend Stocks

4 Fabulous Dividend Stocks to Buy in July

Are you looking for long-term income? These four dividend stocks should not only provide you with value in July but…

Read more »

financial freedom sign
Dividend Stocks

5 Steps to Financial Freedom for Canadian Millennials

Follow these steps and nothing can stop Canadian millennials from achieving their early retirement dreams.

Read more »

Investor wonders if it's safe to buy stocks now
Dividend Stocks

We’re Only Getting Older: A Top TSX Stock That Benefits From an Aging Population

For a bet on the aging population, consider this small-cap stock with growth potential.

Read more »

Growing plant shoots on coins
Dividend Stocks

Yield Today, Growth Tomorrow: 3 Stocks to Keep Building Your Wealth

For investors seeking yield today and growth tomorrow, these top Canadian dividend stocks are certainly worth considering right now.

Read more »

Payday ringed on a calendar
Dividend Stocks

This 10.72% Dividend Stock Pays Cash Every Month

This dividend stock remains a consistent, defensive dividend producer that will give up over 10% in income each and every…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

TFSA Investors: 2 Standout Domestic Stocks With 7% Yields

These top dividend-growth stocks look oversold.

Read more »

Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Despite their recent declines, the long-term growth outlook of these two top dividend stocks remains strong, which could help their…

Read more »