Canadian National Railway (TSX:CNR) is up about 15% in the past three months. TSX investors who missed the rally are wondering if CNR stock is still cheap and good to buy for a self-directed Registered Retirement Savings Plan (RRSP) portfolio targeting total returns.
CNR stock price
CN trades near $166.50 at the time of writing. That’s down about $3 per share in the past week but not far from the record high just above $172 the stock reached in late 2022 and comfortably off the 2023 low near $143.
CNR tends to hold up relatively well when there is economic turbulence. The company serves an important role in ensuring the smooth operation of the Canadian and American economies with a strategic network of rail routes that connect the Atlantic and Pacific coasts of Canada with the Gulf of Mexico in the United States.
Over the past three years, CN has demonstrated its ability to pass rising costs through to customers. This is important for investors to keep in mind when searching for businesses that can effectively navigate periods of high inflation. CN is also a good option for investors who want to get exposure to the U.S. economy through Canadian stocks. The railway generates revenue in both American and Canadian dollars. When the greenback surges in value against the loonie, there can be a nice boost to the bottom line.
Risks?
A deep global economic slowdown would have an impact on demand for CN’s services as the company transports a wide range of commodities and finished products. Erratic weather in Canada can damage or block rail routes. Disruptions occurring in global shipping networks can impact volumes or cause bottlenecks at ports. CN’s connection to key ports on three coasts helps it to adjust to these disruptions, but it isn’t immune to upheaval.
Dividends
CN just announced a 7% increase to the dividend for 2024. The company has a great track record of steady dividend growth since it went public in the mid-1990s. At the current share price, the dividend provides a 2% dividend yield.
Outlook
Rate hikes by the central banks started having an impact through 2023. The railway reported a 2% decrease in overall revenue for 2023 compared to 2022. Adjusted net income slipped 7%.
Despite the headwinds, CN says it expects diluted adjusted earnings per share (EPS) to grow by 10% in 2024 and by a compounded annual rate of 10-15% for the 2024 to 2026 timeframe. Volumes are expected to grow at a faster pace than economic growth, and CN plans to increase pricing above rail inflation.
Is CN a good stock to buy now?
A quick look at the long-term chart suggests that buy-and-hold investors should be comfortable putting the stock in their RRSP at this level and should take advantage of pullbacks to add to the position. Near-term turbulence should be expected, but the outlook for the medium term looks positive, and CN has a proven history of delivering attractive total returns for retirement investors.
