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Canadian National Railway Company: Buy the Dip Before Earnings?

Canadian National Railway Company (TSX:CNR)(NYSE:CNI) is one of the best dividend-growth stocks out there, and long-term investors can do really well by simply picking up shares of this forever stock on any forms of short-term weakness. Shares of CNR are about 4.5% off their all-time highs, and although the stock is fully valued with a 21.3 price-to-earnings multiple, I still believe there’s a substantial amount of upside from current levels because of several tailwinds which will work in the company’s favour.

The U.S. economy is supposed to pick up over the next few years, and as this happens, auto and construction material shipments are expected to pick up. Commodity prices have also been weak for quite some time now, but as they gradually recover, expect CN Rail to benefit from an increase in shipments of various commodities, including oil and potash.

North America’s most efficient railroad becoming even more efficient

CN Rail recently announced that it will be spending up to $2.6 billion this year, part of which will go towards acquiring 22 new locomotives, and $1.6 billion of which will go towards upgrading track infrastructure. The management team estimates that the operating ratio will increase by 0.5-1% for the year. CN Rail is still North America’s most efficient railroad, and over the long term we can expect the company to invest more to become an even more efficient operator.

More dividend growth to come

You’re probably aware that CN Rail is a dividend-growth king, but there’s reason to believe that the magnitude of this growth could increase over the next few years as the company generates more cash from its operating activities thanks to a number of macroeconomic tailwinds. CN Rail’s dividend has grown at an average of 18.2% over the last five years, which is really remarkable. If you bought shares and hold for a decade, not only would your capital gains snowball, but your dividend will as well.

Bottom line

In the last quarter, CN Rail reported solid results which saw net income and revenue rise by 11% and 8.2%, respectively. The general public was not impressed with some of the efficiency results for the quarter, so the stock sold off in the trading session before rebounding to new highs. Although it was a great quarter on the whole, the general public had unrealistic expectations thanks to the excessive bullishness brought forth by Donald Trump and his agenda.

CN Rail is expected to release its Q2 2017 results this week, so investors keen on initiating a position on this dip should probably consider buying half of their position now and half after the report, just in case investors are unhappy with the results.

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Fool contributor Joey Frenette owns shares of Canadian National Railway. 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.

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