CN Rail (TSX: CNR) isn’t just one of the best dividend-growth juggernauts in Canada; it also has one of the widest moats out there. Indeed, the railways make for fantastic investments for investors seeking to build wealth through the decades. Shares of CNR have handsomely outpaced the broader TSX Index over the past 10 years, soaring more than 192%. Indeed, that’s a pretty good return, while the TSX returned just north of 52% over the same time span.
Even as artificial intelligence picks up traction, CNR stock stands out as a boring, low-tech business that stands to continue to do well, at least over prolonged periods of time. Over the nearer term, the rail plays stand to fluctuate, perhaps wildly, as the economy faces its fair share of ups and downs.
In the next five years, though, I do believe CN Rail could continue to win big for investors, outpacing the TSX and perhaps even the S&P 500. Indeed, CNR stock has been quite sluggish, rising just 10% in the past two years. The industry isn’t exactly firing on all cylinders right now, with a potential recession in the crosshairs.
CN stock could heat up in 2024 and beyond
Still, CN’s finish to 2023 has been nothing short of remarkable. The stock is up nearly 18% since its October 2023 lows. And I think shares could be headed much higher, especially if a recession never materializes. Indeed, with U.S. stocks flirting with new highs, it doesn’t seem like we’re in the midst of (or expecting) some sort of dire economic downturn. In any case, the next five years could be very interesting, as CN Rail looks to win back the title of North America’s most efficient railway.
CN Rail lost out on the bid for Kansas City Southern in what was quite the bidding war a few years ago. Indeed, CN may have the appetite for making deals after it lost the right to buy up Kansas City Southern to its long-time Canadian rail rival. More recently, CN bought Iowa Northern, an intriguing deal that adds around 400 kilometres worth of rail in Iowa. It’s a fairly small acquisition but one that’s sure to give CN Rail a nice jolt over the long run.
CN Rail: Making (smaller) deals across the space
The Iowa Northern deal could be just one of many as CN looks to add to its already enviable North American rail network. Perhaps smaller-scale (or bite-sized) acquisitions make more sense at this juncture.
Valuations in the industrial scene have grown quite modest in recent years amid subtle macro headwinds. And with federal regulators less likely to stand in the way of smaller deals, I think CN stands out as a candidate that could do incredibly well in expanding from here with some help from mergers and acquisitions.
In any case, CN Rail looks like a fantastic buy right here as the firm looks to keep making small-scale deals. In addition to the Iowa Northern deal, CN also took a stake in Cape Breton & Central Nova Scotia railway. The news mostly flew under the radar. Still, such small deals will add up in time, making them more than worthy of investor attention.
