Canadian National Railway Company: Should This Stock Be in Your Portfolio?

Here’s what investors need to know about Canadian National Railway Company (TSX:CNR)(NYSE:CNI).

| More on:
The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Canadian National Railway Company (TSX:CNR)(NYSE:CNI) has rallied 15% in the past two months, and investors are wondering if this is the right time to buy the stock.

Let’s take a look at the current situation to see if Canada’s largest railway deserves to be a top holding.

Competitive advantage

CN is the only railway in North America that can offer customers access to three coasts. That is a huge advantage when intermodal shippers are looking for options to move their goods across Canada and into the United States.

The company is leveraging this benefit by investing in intermodal hubs along its network. In doing so, CN can offer customers more flexibility in their shipping options. A client who might normally choose a trucking company to ship goods from the port to the end user has the option to use the railway for a large part of the journey and then hire a truck to complete the final leg of the trip.

Earnings strength

CN delivered Q4 2015 net income of $941 million, up 11% compared with the same period the previous year. Diluted earnings per share rose 15% to $1.18 and operating income increased 7% to more than $1.35 billion.

The numbers are pretty good considering the company had lower sales compared with Q4 2014.

In fact, year-over-year revenue slid 1% and carloads decreased by 8% as weakness in the commodity sectors hit demand. Total metals and minerals carloads dropped 37%, coal fell 17%, grain and fertilizers dipped 7%, and petroleum and chemical shipments came in 5% lower than Q4 2014. This was partially offset by stronger performances from the intermodal and automotive segments.

How did CN deliver such strong results?

The company generates a significant amount of its earnings in the United States, so big moves in the currency spread can have a large impact on results when converted to Canadian dollars.

How big?

The Q4 2015 net income would have been $87 million, or $0.11 per share lower on a constant-currency basis.

The U.S. operations provide a nice hedge against weakness in the commodity segments because the Canadian dollar tends to tank when oil and metals prices falter.

CN is also very good at reducing costs. The company lowered its operating ratio to 57.4% in Q4 2015 compared to 60.7% in Q4 of the previous year. The metric is important because it shows how much revenue the company is using to run the business.

Dividends

CN just raised its quarterly dividend by 20% to $0.3125 per share. The company has increased the distribution every year for the past two decades with an average annual jump of 17%. That’s an impressive track record.

Should you buy?

The stock isn’t as cheap as it was in January, but CN remains a top pick for buy-and-hold investors.

The company is very efficient and enjoys a leadership position in an industry with limited competition and huge barriers to entry. That combination is hard to find, and investors should feel comfortable owning the stock, even at the current price.

Should you invest $1,000 in Cineplex right now?

Before you buy stock in Cineplex, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Cineplex wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 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.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Investing

Offshore wind turbine farm at sunset
Energy Stocks

Got $500? Where I’d Invest it in This Green Energy Stock for Long-Term Sustainable Returns

This green energy company’s growing scale and focus on rewarding investors make it a top bet for investors looking for…

Read more »

data analyze research
Stocks for Beginners

Smart Money’s Playbook for the Current Market Dip

This market dip might be worrying investors, so don't worry with these two stocks.

Read more »

golden sunset in crude oil refinery with pipeline system
Energy Stocks

TC Energy: Buy, Sell, or Hold in 2025?

TC Energy is up 30% in the past year. Are more gains on the way?

Read more »

protect, safe, trust
Investing

Stock Market Correction: 1 Safe-Haven Stock for TFSA Stability and Future Appreciation

Fortis (TSX:FTS) stock could be a great way to ride out more tariff volatility in April 2025.

Read more »

analyze data
Dividend Stocks

How I’d Invest $28,000 in Canadian Natural Resource Stock to Amass Personal Wealth

Investing in TSX dividend stocks such as Enbridge can help you earn a passive-income stream in 2025.

Read more »

hand stacks coins
Dividend Stocks

Got $400? How I’d Start Building Income With 3 High-Yield Stocks for the Long Term

These high-yield dividend stocks have a solid payout history, making them compelling investments to generate passive income.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Friday, April 4

With broad-based commodity weakness continuing and no resolution in sight on the trade front, the TSX could extend its decline…

Read more »

Canada day banner background design of flag
Tech Stocks

The Top Canadian Stock to Buy With $5,000 in 2025

There are few Canadian stocks out there that offer the outlook of this tech stock, bound for more growth.

Read more »