Last week, the Canada Revenue Agency, or CRA, announced a new annual limit for the TFSA (Tax-Free Savings Account) in 2024. The CRA has increased the TFSA annual contribution limit for the second consecutive year, to $7,000 in 2024. That’s up from $6,500 in 2023 and $6,000 in 2022.
It also means the cumulative contribution room for TFSA investors has increased to $95,000 in 2024. The Canadian regulators have increased the TFSA limit for 2024 to $7,000 due to elevated inflation levels, which have touched multi-year highs.
Enjoy tax-free returns in a TFSA
The TFSA is a Canadian registered account sheltered from CRA taxes. You can hold a variety of qualified investments in the TFSA, such as bonds, stocks, exchange-traded funds, and mutual funds.
Any returns in the form of interest, dividends, or capital gains are exempt from taxes, making the TFSA an ideal account to hold blue-chip dividend stocks such as Canadian National Railway (TSX:CNR).
In the last two decades, CNR stock has returned over 1,000% to shareholders. After adjusting for dividends total returns are closer to 1,600%. Comparatively, the TSX index has returned just 365% to shareholders in dividend-adjusted gains.
Canadian National Railway operates 20,500 route miles of track. The TSX giant is critical to the Canadian economy as it transports over 300 million tons of natural resources, manufactured products, and finished goods through North America each year.
Among the largest transportation and logistics companies globally, CNR is valued at $100 billion by market cap. It remains focused on efficiency by running a robust railroad and evaluating infrastructure requirements.
With total assets of $50.7 billion, Canadian National Railway reported revenue of $17.1 billion in 2022. It invested $2.8 billion in capital expenditures and generated $4.3 billion in free cash flow. The TSX giant paid shareholders an annual dividend of $2.93 per share in 2022, indicating a payout ratio of 44%, which is quite sustainable.
CNR’s improving earnings profile and low payout ratio enabled the company to increase dividends by 15.8% annually in the last 25 years, which is quite exceptional.
What is the target price for CNR stock?
Canadian National Railway is well positioned to deliver market-beating gains to shareholders in the upcoming decade on the back of its top-line growth, strong free cash flows, adequate return on invested capital, balance sheet strength and improving profit margins.
With a disciplined approach to capital allocation, CNR has the ability to easily adjust resources through economic cycles. Additionally, its capital investments should drive future cash flows higher and dividend growth, enhancing shareholder wealth in the process.
Canadian National Railway has emphasized how it leverages technologies such as the autonomous track inspection program, allowing it to gather detailed information on asset health and target maintenance programs.
In the last five years, CNR has increased revenue by 5% annually, while adjusted earnings and free cash flow have risen by 8% and 14%, respectively, in this period.
Priced at 21.2 times forward earnings, CNR stock might seem expensive. But analysts remain bullish and expect shares to rise almost 10% in the next 12 months.
