Bill Gates owns a huge stake in Canadian National Railway Company (TSX: CNR), a dividend growth stock
Motley Fool Canada | January 9, 2016: A lot of income investors have an investment strategy of simply picking stocks that pay high dividend yields to be the core of their portfolios. Most high-yielding stocks have limited earnings-growth potential for the long run because the companies are paying out a majority of their free cash flow instead of re-investing it to grow future earnings.
For some income investors, like retirees, this is a strategy that works for them since they need a higher income and don’t care too much for capital gains. But for long-term investors seeking to maximize their returns in the long term, simply selecting high-yielding stocks may not be the best strategy. I believe dividend growth stock investing is one of the best strategies for investors seeking terrific results in the long run.
Dividend-growth investing involves picking fantastic businesses that have durable competitive advantages and the ability to grow their dividends by a significant amount over the next few years. Dividend-growth stocks usually have a long-term strategy to increase future free cash flow, so the company can afford to pay an increasing dividend each year. These dividend-growth stocks will pay bountiful yields while accumulating capital gains to give investors the best of both worlds.
Bill Gates loves the rails, and there’s a reason why he owns such a huge stake in Canadian National Railway Company (TSX: CNR). He’s a smart investor, and he knows that the company has one of the widest moats in North America. It has a rail network that spans both Canadian coasts as well as the Gulf Coast. It would take a new entrant many years and billions of dollars to create a network like this.
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