Bill Gates’ 4 Highest Conviction Dividend Growth Stocks

#1 Canadian National Railway (USA) (NYSE:CNI)

Canadian National Railway (USA) (NYSE:CNI) is Bill Gates’ largest holding behind Berkshire Hathaway. Canadian National Railway currently makes up 6.1% of Gates’ portfolio.

Canadian National Railway was founded in 1918. Like every other large holding in Bill Gate’s dividend portfolio, Canadian National Railway is a market leader. The company is the largest railroad business in Canada.

The railroad industry is notoriously slow changing. The industry has changed little in the last 100 years. As a result, Canadian National Railway has little risk of business obsolescence. The company also performed well during the Great Recession of 2007 to 2009. Earnings-per-share fell from a high of $1.70 to a low of $1.52 during the Great Recession, which is mild compared to the losses that occurred in other industries (like automobiles, and finance).

When one thinks of a fast-growing businesses, railroad companies are not the first thing that springs to mind. However, Canadian National Railway has compounded earnings-per-share at 11.8% a year over the last decade.

The company’s earnings-per-share are expected to continue growing at around 11.5% a year for the next several years. As Canada’s largest rail company, Canadian National Railway (USA) (NYSE:CNI) is able to realize high margins. The company’s operating margin is around 48% a year… Significantly higher than either the operating margins of either Apple (33%) or Google (31%). Who knew that railroads were more profitable than tech companies?

Canadian National Railways 11.5% expected earnings-per-share growth combined with the company’s current 1.7% dividend yield gives investors expected total returns of over 13% a year.

Canadian National Railway (USA) (NYSE:CNI) appears to be fairly valued at this time. The company is trading for a price-to-earnings ratio of 19.7. This is reasonable for an industry leading business with excellent total return prospects over the next several years.

Disclosure: None