Investing is a long game. Many fads can come and go, some offering compelling stories, and promising returns that soar to the moon. However, simple, age-old, low-risk investments can also generate significant shareholder returns for long-term-oriented investors who allow the sheer power of compounding to help them attain financial freedom.
Investors who acquired Canadian National Railway (TSX:CNR) stock back in 2011 could be sitting on unbelievably lucrative returns today. They acquired a boring rail stock that had a tangible moat and a management team with a stellar track record of successful execution.
CN Rail: An old, boring business that made CNR stock investors wealthier and happier
An investment in CNR stock has generated more than 470% in total shareholder returns over the past 13 years. However, you had to be a steady-handed, long-term-oriented buy-and-hold investor to see the potential in the railroad stock and enjoy the good returns.
CN Rail was already a 90-year-old business by 2011. There wasn’t anything spectacular about the old railroading business strategy for new stock investors to tout about over a coffee or drinks with peers. However, one simply had to respect CNR’s strong moat, its excellent management track record, the company’s proven history of strong earnings, and its capacity to generate recurring positive cash flows, to buy and hold CNR stock in 2011.
The business had few competitors. Regulatory barriers, and the huge capital outlays required to start a railroad business kept potential competitors at bay.
Although he was the father of Precision Scheduled Railroading, Chief Executive Officer (CEO) Hunter Harrison had exited at the end of 2009, CN Rail’s new CEO Claude Mongeau continued walking on the path of continuous improvement.
Coming out of the Great Recession of 2009, CN Rail’s continued focus on data-driven efficiency improvements helped contain costs and improve operating margins as the North American economy entered a protracted growth path post-2010.
Revenue has grown from $8.3 billion in 2010 to $17.1 billion by 2022. Net income more than doubled from $2.1 billion in 2010 to $5.1 billion last year. CN Rail churns billions in free cash flow each year and continues to actively repurchase its shares every year to augment shareholder returns. It continues to religiously increase its quarterly dividend every year.
How much could you have made on CNR stock investment?
If you’d invested $5,000 in CNR stock in January 2011, and fully reinvested all dividends received, you’d have about $28,900 in your portfolio today. You could have earned about 477.3% in total returns, or a compound annual return above 13.8% per annum over 13.5 years.
An increase in CNR stock price (capital gains) would have grown your capital by 367.9% to $23,400. Quarterly dividends, and religious dividend reinvestment, would have amplified the total return to 477.3% for the period.
Most noteworthy, the dividend yield on your $5,000 investment could have grown to 9.5% annually.
How could the CNR stock dividend yield grown this much? The company paid a $0.32-per-share quarterly dividend in 2011. A two-for-one stock split followed in 2013, that doubled investors’ number of shares held. After 13 years of dividend growth, the company pays a $0.79-per-share quarterly dividend in 2023, which should yield 9.54% on the initial split-adjusted cost of about $33.13 per each CNR share bought in January 2011.
Yes, the income-generating potential on long-held dividend-growth stocks can be this huge.
Is CNR stock still a good buy today?
It’s true that past performance is no guarantee for future returns. However, CNR stock is a must-have stable investment to buy and hold in a core portfolio. To this day, CNR stock’s reputation of generating positive free cash flows, racking in profits, and enhancing shareholder returns has remained intact since going public in 1995.
CN Rail is a railroad behemoth that will continue to move the North American economy in the future. Its core business of affordably moving large cargo volumes remains a core service needed to keep the Canadian and U.S. economies running.
CNR stock could consistently generate wealth and enhance capital stability in retirement portfolios.
