Canadian National Railway Company (TSX:CNR)(NYSE:CNI) has pulled back in recent months, and investors are wondering if the drop in the share price is an opportunity to buy.

Let’s take a look at the latest results to see if CN deserves to be in your portfolio.


CN just reported strong results for Q4 2015. Net income rose 11% to $941 million compared with the same period in 2014. Diluted earnings per share came in at $1.18, up 15%.

Operating income increased 7% to $1.354 billion, and the company generated free cash flow of $632 million.

The results are impressive considering overall revenue actually dropped by 1%, carloads declined 8%, and revenue ton-miles slid 5%.

Most of the carload declines occurred in the commodity segments. Metals and minerals fell 37%, coal dropped 17%, grain and fertilizers fell 7%, and petroleum and chemicals shipments pulled back 5%. On the positive side, intermodal and automotive carloads increased by 5% each and forestry shipments were flat.

Why did earnings come in so strong?

CN is benefiting from weakness in the Canadian dollar. The company generates a significant amount of its revenue south of the border, and the powerful move by the greenback has offset much of the decline in total shipments.

In the Q4 2015 report, CN said net income would have been lower by $87 million, or $0.11 per share, on a constant currency basis.

Operating efficiency also has an impact on earnings. CN reduced its operating ratio to 57.2% in Q4 2015, a solid 3.5% from the 60.7% recorded in Q4 2014. The metric is important in the railway industry because it indicates how much revenue the company has to spend to run the business. The lower the number, the better the results.

Dividend growth

CN is raising its quarterly dividend by 20% from $0.3125 per share to $0.375 per share. The new distribution provides a yield of about 2%. The company has increased the payout for 20 consecutive years with an average hike of 17% per year since the shares went public in 1995.

Should you buy?

The stock has already bounced off the January low, but investors should still consider buying the shares. The company is generating a ton of free cash flow despite the weak economic conditions, and CN remains one of the few companies out there that you can simply buy and forget about for decades.

If you have a buy-and-hold strategy, this looks like a good opportunity to pick up the stock.

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Fool contributor Andrew Walker 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.