Several TSX stocks have delivered game-changing returns to shareholders in the last two decades. One such TSX stock is Canadian National Railway (TSX:CNR), which has returned 1,260% to shareholders since March 2004. After adjusting for dividends, total returns are much higher at 1,790%.
So, an investment of $1,000 in CNR stock back in 2004 would be worth close to $18,900 today. Comparatively, a similar investment in the TSX index would have ballooned to just $4,700.
Despite its market-thumping gains, CNR remains a top stock at the current multiple. Let’s see why.
An overview of Canadian National Railway
Valued at $113 billion by market cap, Canadian National Railway is a world-class transportation leader and trade enabler. The TSX giant transports more than 300 million tons of natural resources, manufactured products, and finished goods throughout North America each year.
Armed with a wide economic moat and massive scale, it is among the best-performing transportation and logistics companies.
Over the years, Canadian National Railway has built its network on the back of key acquisitions in Canada and the U.S., resulting in a coast-to-coast footprint. The company’s focus on scheduling railroading and car velocity benefits customers and shareholders. For instance, operating a scheduled railroad allows CNR to unlock additional capacity while identifying key corridors for capacity investment.
The growth story for Canadian National Railway is far from over. Last year, the company emphasized it has plans to grow organically through partnerships with other Class I railroads as it launches new intermodal interline services to access new markets and compete directly with trucks.
According to Canadian National Railway it competes in a transportation market which is dynamic. Hence, CNR is enhancing its capital planning to prioritize investments systematically while upgrading end-to-end project management capabilities.
How did CNR perform in Q4 of 2023?
In the fourth quarter (Q4) of 2023, Canadian National Railway reported revenue of $4.47 billion, down 2% year over year, and its operating income fell 5% to $1.81 billion. CNR ended 2023 with an operating ratio of 59.3%, an increase of 1.4 percentage points. A company’s operating ratio is defined as operating expenses as a percentage of revenue.
Due to falling sales and profit margins, CNR reported adjusted net income of $1.30 billion or $2.02 per share, a 4% decline from the year-ago period.
CNR attributed the fall in revenue to lower shipments of intermodal and grain, in addition to lower container storage fees and lower fuel surcharge revenues. This was partially offset by freight rate increases and higher shipments of commodities, including potash, natural gas liquids, and refined petroleum products.
What’s next for CNR stock?
Despite an uncertain macro environment, CNR expects to grow adjusted earnings per share by 10% year over year in 2024. It has forecast capital expenditures at $3.5 billion with an return on invested capital between 15% and 17%.
Moreover, CNR expects earnings growth to range between 10% and 15% through 2026, which should support dividend hikes. CNR has raised dividends for 28 consecutive years, showcasing the resiliency of its cash flows and business model. It recently increased dividends by 7% and now offers shareholders a forward yield of 1.94%, given an annual payout of $3.38 per share.
CNR reported a free cash flow of $1.61 billion in Q4 of 2023 and paid shareholders $508 million in dividends, indicating a payout ratio of less than 32%. Thus, CNR has enough room to increase its dividends while reinvesting in growth projects and acquisitions.
Priced at 22 times forward earnings, CNR stock is reasonably valued given its enticing growth estimates.
