There are very few industries that have entry to market costs as high as hauling freight rail. The planning, logistics and sheer capital required to develop a rail network makes it extremely prohibitive that any new competitors will emerge.
This makes companies like Canadian National Railway Company (TSX:CNR)(NYSE:CNI) all the more valuable for investors to buy and hold on to. Each year, the company hauls more than $250 billion of goods across Canada and the U.S.
Let’s take a look at a number of reasons why this is the railway stock you want as part of your portfolio.
Strong Earnings and dividend growth
Canadian National currently trades at over $72, sitting above the 52-week low of $68.81. Over the past month the stock has followed the rest of the market, losing roughly 10%. Over the long term, the stock has performed much better, with the five-year increase at nearly 350%.
During the most recent quarter, Canadian National beat expectations, recording revenues of $3.125 billion. Net income for the quarter was $886 million, or $1.10 per diluted share. Analysts have a price target of $85 on the stock, with a consensus to hold shares of the company.
While companies in other industries are slashing or removing dividends altogether, Canadian National is a company that is increasing those dividends. Dividends were increased by 25% earlier this year to $0.3125 per quarter.
The dividends alone would make Canadian National an impressive part of a portfolio. What really sets this company apart, however, are the new opportunities and deals that are being introduced.
Expansion into new markets and opportunities
Canadian National is the exclusive railway operator for the Port of Prince Rupert. The port, which is now under the ownership of DP World of Dubai, is the fastest growing port for transpacific traffic in North America. The port is a primary gateway to Asia, particularly China.
Canadian National’s network footprint spans from coast to coast, and straight down through the U.S. into the Gulf of Mexico. This uniquely puts the company in position to serve three different coasts on the continent.
Canadian National is now looking to replicate the successes from the Port of Prince Rupert to the port of Mobile, Alabama. The port is currently undergoing a renovation, which should see capacity increase by up to 90%.
For Canadian National, this opens up prospects for additional intermodal traffic, even potentially competing with east coast and west coast traffic.
The renovation is set to be complete in 2016.
While there is always a certain risk associated in investing in stocks, Canadian National is a profitable company in a mature industry that is constantly seeking new revenue streams. In my opinion, Canadian National represents a great option for any portfolio, and the dividend income is an added bonus.
