The Canadian railways provide the backbone of economic activity for many North American industries, transporting more than $250 billion of goods from a diverse range of sectors every year. Canadian National Railway Company (TSX:CNR) is one of the top players in this space, and is a dividend stock in its own right. Currently, the company pays out a dividend yield of 2.2%, but the question many investors have is whether this stock is worth buying for this yield alone?
Let’s dive into why I think this top Canadian railroad operator is a top stock to buy for its dividend yield and other reasons. Indeed, most investors won’t get out of bed for a 2.2% yield, but there are reasons why this is an important factor to consider.
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About Canadian National
Canadian National Railway transports just about everything Canada produces mainly to the U.S. market. From petroleum to chemicals, grain, fertilizers, coal, metals, minerals, forest products, and automotive products, the company is a key player in the transportation industry, and one that continues to earn very stable revenues from its commodity producer clientele. That’s not something that’s going to change anytime soon – these are mostly volume-based industries that tend to trend higher over time.
In other words, for investors looking to benefit from strong economic growth in North America, companies like Canadian National can be viewed as relatively stable defensive bets on this growth. And at a price-earnings multiple of just 18 times, it’s among the more affordable options in this sector right now.
Earnings growth supports continued dividend hikes
One of the key factors many dividend investors may want to consider when it comes to CNR stock is the railroad giant’s dividend growth rate over time. This is a company that tends to raise its distributions considerably (and frequently), meaning the current 2.2% yield investors receive is likely to go up over time.
Much of this is supported by strong fundamentals underneath the surface. Canadian National continues to see EPS growth in the double-digit range, and forecasts the same for the coming three years. With its current valuation multiple, this makes the stock appear cheap at current levels, particularly for those looking for a defensive option.
So, is this stock a buy for its yield?
I think investors need to take a more holistic approach to investing in a company like Canadian National. Of course, dividend income is a key component of the story behind this company, but there are other longer-term secular growth tailwinds that support a strong capital appreciation picture as well.
Thus, from an income, value and growth standpoint, this is a top Canadian stock I think is worth considering right now.
