Now Is the Time to Buy This Dividend-Growth Stock

Canadian National Railway’s (TSX:CNR)(NYSE:CNI) stock is due for a rebound as it beat third-quarter estimates. Protect your portfolio with CN Rail.

| More on:
time is money compounding

Volatility has returned to the markets and investors are getting anxious. Over the past month, the TSX Composite Index has lost approximately 5% of its value. In such times, its best to look for safety and value.

Companies that have a storied history of dividend growth tend to outperform during times of turbulence. One company that can help investors protect their portfolios against a market crash is Canadian National Railway (TSX:CNR)(NYSE:CNI).

Topping estimates

After a tough start to the year, when CN Rail experienced logistical issues, the company has successfully righted itself. On Tuesday, it topped analysts’ estimates on both the top and bottom lines. Third-quarter earnings per share of $1.50 beat by $0.03 and revenues of $3.69 billion beat by $110 million. This represents growth of 15% and 14%, respectively, over the third quarter of last year.

Volume continued to trend upwards with revenue tonne miles (RTM) and carloads growing by 4% and 3%, respectively, year over year. Thanks to its impressive results, the company also decided to up its buyback plan. It now intends to purchase an additional 5.5 million shares for cancellation.

This is the perfect type of company where you want to park your money in times of uncertainty. It will continue to provide growth and income as you wait out the choppy markets.

Rising dividend

CN Rail is a Canadian Dividend Aristocrat, having raised dividends for 22 consecutive years. This places it among the top 10 dividend-growth companies in Canada. Don’t let its low yield of 1.63% trick you. It’s only this low because it has seen significant share price appreciation over the years. Over the past five years, CN Rail’s share price has grown by an average of 17%. This far exceeds the returns of the broader market.

When combined with a five-year history of double-digit dividend growth, CN Rail is a rare combination of growth and income. The best part is that investors can expect this trend to continue. In the first nine months of the year, the company generated $1.881 billion in free cash flow (FCF) and paid $1.001 billion in dividends. As dividends account for only 53% of FCF, CN Rail can comfortably raise dividends at a good pace.

Valuation

No company has been immune to the recent sell-off. CN Rail, however, has fared better than the TSX Index, shedding only 3.7% of its value. Trading at 11 times earnings, the company is cheap. Analysts have a one-year price target of $121.31, 12% upside from today’s price of $108.25.

If you missed out on your opportunity to pick it up on its early year struggles, don’t miss out this time. CN Rail is a buy.

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.

David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Fool contributor Mat Litalien is long Canadian National Railway. Canadian National Railway is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Investor reading the newspaper
Dividend Stocks

Emerging Investment Trends to Watch for in 2025

Canadians must watch out for and be guided by emerging investment trends to ensure financial success in 2025.

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Dividend Stocks

Watch Out! This is the Maximum Canadians Can Contribute to Their RRSP

We often discuss the maximum TFSA amount, but did you know there's a max for the RRSP as well? Here's…

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

Outlook for Fortis Stock in 2025

Fortis stock is up 10% in 2024. Are more gains on the way?

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

3 Low-Volatility Stocks for Cautious Investors

As uncertainty grips the market, here are three low-volatility stocks you can buy and hold with confidence.

Read more »

sale discount best price
Dividend Stocks

Time to Buy! 1 Dividend Stock That Hasn’t Been This Cheap in Years

This dividend stock provides practically everything: a stable income stream, steady occupancy rates, and more growth to come.

Read more »

jar with coins and plant
Dividend Stocks

The Smartest Dividend Stocks to Buy With $2,000 Right Now

Given their stable cash flows and consistent dividend growth, these two dividend stocks are ideal additions to your portfolios.

Read more »

Muscles Drawn On Black board
Dividend Stocks

Canadian Defensive Stocks to Buy Now for Stability

Two TSX defensive stocks offer capital protection and stability for risk-averse investors

Read more »

worker carries stack of pizza boxes for delivery
Dividend Stocks

Monthly Dividend Leaders: 3 TSX Stocks Paying Dividends Every 30 Days

These TSX stocks offer monthly dividends and attractive yields of more than 7%, making them top stocks for passive income.

Read more »