How diversified is your portfolio? Adding one or more defensive stocks to your portfolio is not only an effective way to counter volatility. Recession-proof stock buying, especially the law can lead to years of solid growth and income generation. This is especially true if you are new to investing.
An example to consider is Canadian National Railway (TSX: CNR) (NYSE: CNI).
What can a railroad really offer in 2021?
When we think of a railroad, images of long freight cars stretching out on the horizon come to mind. Unfortunately, many of us associate this image with trying to get around the train, instead of the freight that train carries.
Canadian National is the largest railroad in Canada, transporting goods through a network that stretches from coast to coast and through the American Midwest to the Gulf region. Access to the Gulf Coast is a unique factor that should not be summarily dismissed. Canadian National is the only railway on the continent with direct access to three different coasts.
So the Canadian National is huge. The railroad also carries a lot of goods. Everything from automotive components, chemicals, crude oil and grains to raw materials and finished products can be transported. Collectively, the railroad moves more than $ 250 billion in goods each year to and from ports and bonded warehouses through its extensive network.
In other words, the necessity of the goods they transport makes railways one of the most defensive investments in the market. This is just one of the reasons why railways like Canadian National are often referred to as the arterial veins of the North American economy.
That fact alone makes Canadian National a perfect recession-proof stock to add to your portfolio. But that’s not the only reason you should consider Canadian National.
Let’s talk about growth: is there still potential for growth?
Canadian National recently attempted to acquire one of its peer railways, Kansas City South in a multi-billion dollar contract. The deal has raised concerns with the Surface Transportation Board (STB), which has been strongly opposed to mergers since a series of mergers in the 1990s.
The proposed deal also raised concerns among investors who saw Canadian National as taking on too much debt under the deal. Needless to say, the deal never materialized and that Canadian National can now move on to other initiatives.
One of those other initiatives of note is the Canadian National dividend. The railway currently offers a quarterly dividend which equates to a yield of 1.66%. While that may not seem like much, especially compared to other income stocks, Canadian National’s dividend is very attractive.
Specifically, the stock has provided investors with impressive annual dividend growth for years. In short, buy it, hold it and let it grow.
Time to refuel with recession-resistant stock
While no stock is risk-free, Canadian National really shines as an investment in times of volatility. In case you haven’t noticed, food and fuel prices are steadily rising. If the market is indeed heading for a correction, investing in a recession-proof stock like Canadian National (which could see an increase in earnings as a result) could be very useful.
In my opinion, a small position in Canadian National should be a core holding in any well-diversified portfolio.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a Motley Fool premium service or advisor. We are straight! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer, so we post sometimes articles that may not conform to recommendations, rankings or other content. .
Silly contributor Demetris Afxentiou owns shares in Canadian National. The Motley Fool recommends Canada’s National Railways.