Finding the right passive income stock right now can be pretty hard work. There are plenty of options, and it’s something Motley Fool investors are all over. But the right one means you’ll continue to get stable dividends that keep rising.
In the past, one passive income stock in this category was Canadian Pacific Railway (TSX:CP)(NYSE:CP). However, in the last year CP stock slashed its dividend. So the question now is whether CP stock is still a top dividend stock to consider.
Why the cut
It’s clear why CP stock cut its dividend if you’ve been watching headlines over the last year. The railway company won the contract to acquire Kansas City Southern, beating out Canadian National Railway. However, it came with a hefty price tag of USD$31 billion. That cash is going to have to come from somewhere, and that somewhere included dividends.
This meant the dividend of $3.80 per year was slashed back in July 2021 to $0.76 per share per year. That gives today’s Motley Fool investor a yield of just 0.78% as of writing.
So whereas before, many writers (myself included) would recommend the company as a buy for the dividend, it’s not the same today. If you’re looking for a passive income stock, I wouldn’t say CP stock is your best bet. But a growth stock? That I would consider.
Buy for growth
CP stock has gone through a lot over the last decade. It had a major overhaul back in 2012, cutting back on costs and hoarding cash. It reinvested in its infrastructure and created a solid balance sheet that allowed it to get to where it is today. And where it is, is in a prime position to buy up a company like KCS.
The deal makes CP stock the only railway to run from Canada down to Mexico. The only one. Meanwhile, the addition will give the company more revenue from oil, grain, and automotive transportation. It also feeds into the company’s mission of reducing greenhouse gases, considering it gives more competition to truck transportation, and CP made a deal to start up hydrogen-fuel-cell powered trains.
So long term, this KCS deal is a solid one. There is bound to be incredible growth, with the company currently having a consensus target price of $107 as of writing. Yet many continue to raise that guidance well into the triple digits thanks to the deal.
Think long term
Now of course I do say long term, and that’s what you get here with CP stock. It’s definitely for the more patient of Motley Fool investors, and certainly something shareholders will want to hold onto. There is a lot of growth coming, and it’s not what you want to miss out on.
But near term, it may not be the best option. CP stock’s organic earnings per share (EPS) growth is likely to be lower in the near future. This comes from the ongoing supply-chain disruptions, winter weather impacting earnings, and a labour dispute. Yet that too could be made up with the ongoing Ukraine crisis and declining diesel prices affecting CP’s use.
Foolish takeaway
Therefore, it’s a toss up. You get a bit of a dividend, but not much. Things could improve this year alone, but more back to normal instead of insane growth. But that insane growth is coming over the next few years for those willing to wait. And when it does, it could become that stellar passive income stock once more.
