Slow and Steady: Buy this Railroad Stock Now to Win the Race

Investors looking for a solid and growing income should pick up shares in this railroad.

| More on:
railroad

Image source: Getty Images

Looking for a stock that can provide growth and income? A great option to consider is Canadian National Railway (TSX:CNR). Investors should look to buy this railroad stock now for long-term income and growth potential.

Buy this railroad stock for its necessary and reliable business

One of the biggest misconceptions about railroads is that they are tech from the last century without a place in our digital world.

That couldn’t be further from the truth. Shipments by rail still constitute the bulk of all freight travel. In the hyper-competitive U.S. market, rail comprises over 40% of total freight.

That’s a staggering amount, but here’s another more visual comparison. Each rail car can hold the equivalent freight that several trucks can carry. And each train can comprise dozens of rail cars.

In other words, railroads are a critical piece of the entire North American economy. And Canadian National is the largest railroad in Canada, and one of the largest on the continent. The railroad boasts a network of over 35,000 km of track.

The network traverses Canada and down through the U.S. Midwest to the all-important Gulf coast and its refineries. That impressive network also means that Canadian National boasts two key facts that no other railroad on the continent can offer.

First, this railroad alone offers access to three separate coastlines. This provides a unique defensive moat for the railroad that none of its peers can match.

Second, Canadian National has exclusive access to the port of Prince Rupert. The port serves as the western Terminus of CN’s extensive network and is a major shipping hub to Asia. In fact, Price Rupert is the closest port to Asia on the continent with sailing times three days shorter than from Vancouver or Los Angeles.

In short, investors should buy this railroad stock for long-term gains that come from its reliable and defensive operations.

What about earnings?

Each year Canadian National hauls over $250 billion worth of goods across its extensive network. This includes everything from automotive supplies, chemicals, and finished products to crude oil, raw materials, and wheat.

Canadian National recently provided an update on results for the fourth fiscal quarter of 2022. In that most recent quarter, the railroad reported 23% year-over-year earnings growth, which came in at $1.4 billion.

On a per-share basis, the earnings worked out to a respectable $2.10. Revenue for the quarter topped $4.5 billion, registering a 21% bump over the same period last year.

While the results were impressive, they came with a word of caution. CEO Tracy Robinson noted on the earnings call that the prospect of a recession could impact Canadian National’s results later this year.

Specifically, lower industrial production levels due to higher costs will spill over into fewer shipments of finished products and raw materials.

Canadian National noted that as a result, earnings on a per-share growth basis for the next fiscal will be lower, into single-digit territory. That’s a realistic and mature approach to the current market volatility, which is part of the normal cycle.

For investors, this could mean an opportunity to buy this railroad stock is approaching, but there’s one more reason to consider.

A growing dividend

Investors are often dismissive of Canadian National’s dividend, partially because of its 2% yield. That’s unfortunate because if we look a little deeper, investors will see that Canadian National is one of the best dividends stocks on the market.

Canadian National has been paying out dividends for decades. More importantly, the company has been providing investors with a juicy annual bump to that dividend for over two decades without fail.

And those increases are what investors should take a closer look at. Over the course of the past two decades, the compound annual growth rate on that dividend has approached an impressive 15%.

The railroad is also maintaining that cadence. In 2022, the railroad bumped its dividend by 19%. For 2023, the recently announced uptick is a respectable 7.8%.

In other words, Canadian National is a stellar long-term pick. Buy this railroad stock now as part of a larger, well-diversified portfolio.

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 Demetris Afxentiou has positions in Canadian National Railway. The Motley Fool recommends Canadian National Railway. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

TFSA Maxed Out? Here Are 5 Other Ways to Grow Your Wealth in Canada

Canadians have other options to grow wealth after maxing out their TFSA contribution limits.

Read more »

A man smiles while playing a video game.
Dividend Stocks

RRSP: 2 High-Yield Dividend Stocks to Consider Now

These top TSX dividend stocks offer attractive yields today for RRSP investors.

Read more »

edit Sale sign, value, discount
Dividend Stocks

2 Bargain Stocks You Can Buy Today and Hold Forever

These two stocks are reliable and trade ultra-cheap, making them among the best TSX stocks to buy now and hold…

Read more »

Person holds banknotes of Canadian dollars
Dividend Stocks

Top 3 Dividend Stocks Yielding Over 7% to Buy in June 2024

Are you looking for the best of the best dividend stocks? These three are the ones that belong on your…

Read more »

Dividend Stocks

RRSP Investors: Buy These Top Dividend Stocks for Total Returns

RRSP investors can consider adding blue-chip dividend stocks such as Tourmaline Oil to their equity portfolios in 2024.

Read more »

Payday ringed on a calendar
Dividend Stocks

This 8.9 Percent Dividend Stock Pays Cash Every Month

You can forget about risks related to short-term market volatility and buy this high-yield monthly dividend stock to expect solid…

Read more »

Dividend Stocks

RRSP Wealth: 2 Great Canadian Dividend Stocks to Buy in June

Dividend stocks like Brookfield Asset Management (TSX:BAM) can be great RRSP holdings.

Read more »

Dividend Stocks

How to Build a Monthly Passive-Income Stream With Canadian REITs

These two monthly dividend stocks will create passive income you can live off of for life, and now is the…

Read more »