3 Reasons Why Now Is the Time to Buy Canadian National Railway Company

Because of its wide moat, its efficient operations, and its growing earnings and dividend, investors would be foolish not to buy Canadian National Railway Company (TSX:CNR)(NYSE:CNI).

| More on:
The Motley Fool

For those investors looking to invest in a company that is reasonably priced, pays a lucrative dividend, and is not going to be going anywhere for decades to come, they should look no further than Canadian National Railway Company (TSX:CNR)(NYSE:CNI). I believe that this company is such a great buy and you should look to buy shares right now.

Here are three reasons to support my claim about Canadian National Railway.

1. It is really efficient

The company is investing money wisely in an effort to make it an even more efficient company than it already is. According to the company, its Q1 2015 operating ratio was 65.7%, which is quite a bit lower than the 69.6% it reported in the first quarter a year prior.

There are a few ways that it is able to do this. It is investing $800 million for intermodal terminals, which will help it to unload product much faster. The longer it takes to get one of these containers on or off the train is time that could be better spent actually transporting the goods.

The company is also spending $1.4 billion to improve track infrastructure. This will allow trains to run without delay. And finally, it is spending $500 million on equipment; 90 new locomotives will be joining the fleet, which will ensure up-time for the trains.

2. Earnings and dividends

Because its operating ratio has been going down, it has been able to generate more profit. According to the company, its net income this first quarter was $0.86/share compared with last year’s $0.75/share. All of this occurred while there was a drop in the amount of crude shipped by rail.

This increase in earnings has allowed the company to continue paying out a lucrative dividend. As of this writing, the company pays a 1.66% yield, which is $1.25/share split up into four quarterly payments. On the surface, that sounds small until you realize that the company also buys back shares, which pushes the price of the stock even higher. To top it off, it continues to raise the dividend. Ever since 1996, the dividend has been raised, and this past year it increased by 25%.

3. Its moat is wide

Companies that can prevent competition from popping up are the most likely to succeed. That’s why Canadian National has existed for as long as it has. If I wanted to launch a competitive railroad, I would need a lot of money. It’s not feasible.

Warren Buffett argues that the wider the moat, the better. And Canadian National has one of the best moats in the business. It has one other Canadian competitor and it is the only railroad that goes coast to coast in Canada and all the way down to the Gulf of Mexico.

Is it time to buy?

Right now the shares are down from an all-time-high of $88.89. While the stock is a little expensive, I believe the dividend and its moat more than make up for that premium. You are paying for a company that you will own for years, if not decades. Therefore, buying now would definitely not be a bad move.

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 Jacob Donnelly has no position in any stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Canadian National Railway is a recommendation of Stock Advisor Canada.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »