What You Need to Know About CN Rail’s $25 Million Deal

New Brunswick pays up to keep northern services; what does the move mean for investors?

| More on:
The Motley Fool

On Friday, the government of New Brunswick announced that it would step in and give $25 million to CN Rail (TSX:CNR)(NYSE:CNI) for railroad upgrades. The upgrades are earmarked to maintain freight service in an area of the northern part of the province that was slated for closure.

In return, CN Rail has committed to spend the same amount of money to maintain and operate the line and its freight services for the next 15 years. CN announced back in 2012 that it would need $50 million from the government and other partners to upgrade the line or it would discontinue the Newcastle Subdivision services in March 2014. The work is expected to begin later this spring.

The improvements are slated to happen along the 224km-long Newcastle Subdivision, which is located from Catamount, NB (just west of Moncton), to Irvco NB (about 32 km west of Bathurst).

CN originally marked this area to be discontinued because it was running annual losses due to a lack of traffic volumes and mounting infrastructure costs. CN acquired this line when it acquired the Quebec Rail Corporation in 2008.

Pressure to maintain services mounted from shippers and residents and even included a Facebook page.

However not all of the Newcastle line will be saved by this deal. A 70km section of the track was not part of the deal with CN and NB. A significant infrastructure investment and lack of rail traffic kept this portion of the track from being salvaged.

This will lead to a gap of freight service between Bathurst and Moncton, unless a private interest or another level of government steps up when the track is offered up in early February.

Foolish bottom line

With this government hand-out, CN will continue to be able to provide freight services to northern New Brunswick, an area that relies heavily on CN to move their goods.

While this might seem like a drop in the bucket for a company that moves $250 billion worth of cargo a year, these fringe services play an important role in maintaining CN as a nationwide rail powerhouse.

With all the bad press relating to recent derailments, any improvements to CN’s infrastructure should begin to settle the nerves of jittery investors.

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 Cameron Conway does not own any shares in the companies mentioned.

More on Investing

nugget gold
Metals and Mining Stocks

Should You Buy New Gold Stock While It’s Below $8?

New Gold is a TSX mining stock that has more than doubled in the last 12 months. Is NGD stock…

Read more »

Nuclear power station cooling tower
Energy Stocks

1 Magnificent Canadian Stock Down 13% to Buy and Hold Forever

Canadian stocks can be tough when it comes to choosing the right option, but this one is a no brainer.

Read more »

A meter measures energy use.
Dividend Stocks

Best Stock to Buy Right Now: Fortis vs Emera?

These utility stocks are on a roll. Is one still cheap?

Read more »

money cash dividends
Dividend Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Investing in fundamentally strong TSX dividend stocks can help you outpace the broader markets over time.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Thursday, June 12

Cooling inflation data out of the U.S. propelled the TSX to a record close and boosted hopes for sooner-than-expected Fed…

Read more »

Hand Protecting Senior Couple
Dividend Stocks

Transform Your Retirement With This 4.7%-Yielding Dividend Knight

Retirement is supposed to be the best time, but can often be the scariest – except when you have this…

Read more »

Metals
Metals and Mining Stocks

Should You Buy First Majestic Silver Stock While It’s Below $12?

First Majestic Silver is a TSX mining stock positioned to deliver outsized gains to shareholders over the next 18 months.

Read more »

Aerial view of a wind farm
Energy Stocks

5.8% Dividend Yield! I’m Buying This Dividend Stock and Holding for Decades

There are energy stocks, and then there's this undervalued dividend stock for long-term income.

Read more »