Canadian National Railway (TSX:CNR) is an anchor holding in many self-directed Registered Retirement Savings Plan (RRSP) portfolios. Investors who missed the recent bounce in the share price are wondering if CNR stock is still undervalued and good to buy for a retirement fund.
CNR stock price
Canadian National Railway trades for close to $168.50 at the time of writing compared to $144 in October. The sharp jump in the stock price over such a short period of time is another reminder to investors that trying to time the market can lead to missed upside on great TSX stocks.
A quick look at the long-term trend suggests that patient investors should eventually do well, even if they buy near a short-term top.
CN plays a valuable role in the smooth operation of the Canadian and U.S. economies. The company has rail lines that strategically connect the Pacific and Atlantic coasts of Canada to the Gulf of Mexico in the United States. This gives domestic and international customers access to three ports. CN transports a wide range of cargo, including coal, crude oil, cars, grain, fertilizer, forestry products and finished goods. When one segment slows down, the others tend to pick up the slack. In addition, CN generates revenue in both Canada and the United States.
The company has been successful in raising rates to accommodate for rising costs in the past few years. This is important for investors to consider when searching for companies that have the ability to drive strong results in an environment of high inflation.
CN isn’t immune to economic turbulence. A slowdown in the North American and global economies would impact rail volumes as consumers and businesses reduce spending. That being said, the long-term outlook is for continued global economic growth. This bodes well for Canadian National Railway and its investors.
CN will probably report 2023 adjusted diluted earnings per share (EPS) that is close to the 2022 results. Looking ahead, management sees good numbers coming in the next few years. Compound annual diluted EPS growth is expected to be 10-15% for 2024-2026, supported by volume growth that outpaces economic expansion and strong pricing power above rail inflation.
CN has a great track record of increasing the dividend and returning cash to shareholders through share buybacks. CN increased the 2023 share-repurchase budget from $4 billion to $4.5 billion when the board reported the Q3 2023 results. The company raised the dividend by 8% for 2023. Investors should see another decent increase for 2023. Since going public in the 1990s, CN has been one of the best dividend-growth stocks on the TSX with a compound average annual dividend growth rate above 10%.
At the current share price, the yield is 1.9%.
Should CNR stock be on your buy list?
Investors focused on passive income might want to search for other top TSX dividend stocks that still trade at discounted prices and offer high yields. RRSP investors focused on total returns; however, they should put CNR on their radars. The stock is probably fully valued today, but it could still go higher in the coming months if the broader market extends the recent rally.
If you already own the stock, it makes sense to hold today. New investors might want to take a half position and look to add to the holdings on a pullback. If the financial performance in the next three years comes in as expected by management, this stock should climb to a new record high.
