Down by 10.6%: Is it Time to Buy Canadian National Railway Stock?

Take a closer look at this Canadian Dividend Aristocrat that’s over 10% down from its 52-week high to see whether it’s a solid buy right now.

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The rollercoaster of a ride continues as we near the end of 2023. As of this writing, the S&P/TSX Composite Index is down by 3.5% from its 52-week high. The Canadian benchmark index keeps inching back its losses, but the broader downturn has led to several high-quality stocks trading at arguably undervalued levels.

The market volatility has not spared even the most resilient Canadian Dividend Aristocrats from declining share prices, including Canadian National Railway (TSX:CNR) stock.

Today, we will look at one of the best dividend stocks on the TSX. While a dividend aristocrat of the highest level, is it worth adding to your self-directed investment portfolio right now?

Canadian National Railway

Whenever a market crash seems likely, investors tend to pull money out of the markets and into safe-haven assets elsewhere. On the other hand, the more seasoned investors tend to look for and invest in stocks capable of weathering the storm and coming out stronger on the other side. CNR stock has a long dividend-paying history that warrants a place among investor portfolios.

The Montreal-based $101.6 billion market capitalization company owns and operates a freight railway network serving Canada, and the Midwestern and Southern United States. It is responsible for transporting large volumes of freight throughout its railway network, making it vital to the economy. Regardless of market circumstances, CN Railway is capable of putting up a strong performance.

That said, weakness in the economy has impacted CN Railway stock as well. Its earnings for the third quarter in fiscal 2023 showed a weaker performance compared to Q3 in fiscal 2022. In a year-over-year period, its total revenue declined from $4.5 billion to $4 billion. Its adjusted net income fell from $3.7 billion to $3.5 billion. The reason? Weakening consumer demand.

As people cut down discretionary spending amid economic woes, CN’s intermodal freight revenue dropped by 23% in the first nine months of 2023 compared to last year.

Foolish takeaway

Economists expect the economies in Canada and the US to continue slowing down, even as we go into 2024. The interest rate hikes implemented by central banks here and across the border will take effect.

There are justifiable concerns that the US Federal Reserve and the Bank of Canada might have pushed a little too much with interest rate hikes. When interest rates are too high, the slowdown in economic activity can lead to a sustained downturn.

If the situation does not start to improve soon, share prices across the board will likely decline further. It means CN Railway stock might see its share prices fall in the near term due to a drop in demand for its services.

The company’s management is still hopeful for a recovery. With measures to raise its prices to combat inflation and improve its overall operational efficiency, CN Railway’s management is confident about a rebound within a few years.

As of this writing, CN Railway stock trades for $156.78 per share, paying its shareholders their dividends at a 2.02% dividend yield. While there is a possibility of further share price declines in the near term, nothing indicates CN Railway stock as a risky long-term investment.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway. The Motley Fool has a disclosure policy.

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