If you’ve been considering adding Canadian National Railway (TSX:CNR) to your portfolio, now is a great time to take a closer look. Trading at approximately $143.89, this iconic Canadian stock hasn’t been this cheap in years. Its current valuation, combined with strong fundamentals and a robust history of dividend payments, makes it a compelling buy for both growth and income-focused investors. Let’s dive into why now might be the perfect opportunity to buy into this TSX stalwart.
Into earnings
CNR stock’s recent earnings report for the third quarter (Q3) of 2024 showcased its operational strength despite broader economic challenges. The company posted quarterly revenue growth of 3.1% year over year — a testament to its ability to adapt to fluctuating market conditions. While quarterly earnings dipped slightly by 2.1%, this was largely due to temporary factors, including supply chain bottlenecks and short-term increases in operating expenses. Importantly, CNR stock maintained its impressive profit margin of 31.66% and an operating margin of 39.63%, which highlights its efficient operations and cost management.
The stock’s current price-to-earnings (P/E) ratio of 17.06 is significantly below its five-year average, signalling that CNR stock is undervalued relative to its historical norms. The trailing annual dividend yield of 2.31%, with a payout ratio of just under 40%, also underscores its appeal to income investors. The company has a strong history of increasing its dividend over time, with its five-year average yield at 1.82%. With a forward annual dividend rate of $3.38 per share and a recently announced dividend date of December 30, 2024, CNR stock remains a dependable source of passive income.
The big picture
Looking at CNR stock’s long-term performance, the stock has been a consistent winner for patient investors. Over the last decade, it has delivered steady capital appreciation while maintaining a low beta of 0.65, meaning it offers lower volatility than the broader market. Despite its recent dip, CNR stock has strong fundamentals, including its robust cash flow of $7.12 billion and levered free cash flow of $2.6 billion. These suggest it is well-positioned to weather economic downturns and capitalize on growth opportunities.
From an operational perspective, CNR remains a cornerstone of Canada’s transportation and logistics sector. The company plays a critical role in moving goods across North America, with a network spanning Canada, the United States, and Mexico. This geographic diversity provides it with a stable revenue base and mitigates risks associated with localized economic downturns. The recent modernization of its infrastructure and its investments in green initiatives, such as lowering fuel consumption and emissions, enhance its long-term growth prospects.
Looking ahead
Despite short-term pressures on the global economy, the outlook for CNR stock is bright. The company’s focus on innovation, including the integration of advanced logistics technologies, positions it well to meet future demand for efficient and sustainable transportation. Its strategic partnerships and investments in rail safety and automation further reinforce its competitive edge. Moreover, as global trade recovers, CNR is poised to benefit from increased freight volumes across its extensive network.
What makes CNR stock particularly attractive now is its recent drop from a 52-week high of $181.34 to its current price, which is just above its 52-week low of $143.18. For value investors, this represents a golden opportunity to buy a high-quality, dividend-paying stock at a discount.
Bottom line
Adding CNR stock to your portfolio isn’t just about capturing potential upside. It’s about investing in a company that has stood the test of time. With a market cap of $90.64 billion and a forward-looking approach to growth and sustainability, CNR stock combines stability with opportunity. Whether you’re looking to build wealth through long-term capital appreciation or secure steady income through dividends, this stock checks all the boxes.
