When it comes to railway lines in Canada, there are literally only two to choose from. This duopoly has proven to be quite a strong investment for Canadians throughout time. With no room to edge in, both these railways have proven to be solid long-term purchases.
But, which is better these days? Today, let’s take a look at Canadian National Railway (TSX: CNR) and Canadian Pacific Kansas City (TSX: CP) to see which is the better buy heading into 2024.
CP stock
Let’s get the obvious out of the way, shall we? CP stock has been a top contender for strong growth recently because of its purchase of Kansas City Southern. Now that this company is up and running full steam ahead, many investors may believe it’s only up from here.
While synergies and new product lines will certainly help out CP stock, the company does have a large amount of debt it will need to manage over the next few years. So if you’re hoping to see the dividend rise to where it was before, that’s not going to be likely.
Even so, fourth-quarter estimates should remain stable, according to analysts, though with perhaps lower-than-expected volumes. This will likely come from lower grain production, as well as higher fuel costs.
However, CP stock is likely to achieve double-digit earnings per share (EPS) growth, and honestly it better given the investment into a new rail line. This should continue as more growth comes the way of the company, and Kansas City gets up and running.
CNR stock
So what about CNR stock? Over the last few years, the company was in a battle with CP stock to get Kansas City, and it seemed as though it would happen! After all, it had the higher bid. However, the Surface Transportation Board (STB) in the United States favoured CP stock as there were fewer rail lines that overlapped.
Now, the company has moved more away from growth and back to its bottom line. CNR stock came to prominence as a premier precision rail line, and it looks likely that this will be the focus in the near future once more. Plus, it continues to have a monopoly on certain port routes across Canada. So by having the most secure, on-time rail line and the only access to some ports, it looks like it will remain a strong option.
Even so, it’s unlikely to beat out CP stock in terms of earnings over at least the next year. Near-term volume trends will remain lower than its competitor and fuel costs also give it a hit. But even with all this considered, it should still see double-digit earnings per share growth as well, even potentially higher than U.S. peers.
The question will be, where will this lead to? Will CNR stock seek out new opportunities as it has in the past? Likely, but it remains to be seen what those could be.
Bottom line
CNR stock will always be around, but in the next year it looks as though CP stock is the favoured choice among analysts. With more growth on the way, it could be that the company can use that growth to bring down debt, and eventually bolster its dividend once more.
But if you want more security through dividends and stable growth, CNR stock could be a good option instead. With a focus on what has worked in the past, you can hold this stock for a decade knowing exactly what to expect. Either way, Canadian railways remain a strong option as our duopoly continues in Canada.
