Choosing between Canadian National Railway (TSX:CNR) and Canadian Pacific Kansas City (TSX:CP) is no small task. These two railway giants dominate the North American landscape. Both have proven to be excellent investments over the years, but as of now, there are key differences in their performance, valuation, and future prospects that might sway investors toward one or the other.
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Into earnings
Starting with recent earnings, CNR’s third-quarter report highlighted a 3.1% year-over-year revenue increase, reaching $4.1 billion. However, net income dipped by 2.1% to $1.1 billion, resulting in a slight decline in its profit margin, which now sits at 26% at writing. On a brighter note, diluted earnings per share (EPS) rose by 2% to $1.72, thus showcasing a modest improvement despite challenges such as labour strikes and wildfires in Alberta earlier in the year.
CP followed up with its own third-quarter results. Revenues climbed 6% year-over-year to $3.5 billion, reflecting strong network integration and higher volumes of cross-border trade. CP’s diluted EPS grew from $0.84 to $0.90, while adjusted diluted EPS rose by 8% to $0.99, highlighting stronger profitability. This momentum reflects the benefits of the 2023 merger between Canadian Pacific and Kansas City Southern.
When it comes to past performance, CNR has long been a stable and reliable choice for investors. It has a robust history of creating shareholder value through efficient operations, safe rail management, and sustainable practices. Meanwhile, CP has shown significant potential since its merger. The combined entity is uniquely positioned to capitalize on trade flows between Canada, the U.S., and Mexico, Over the past year, CP stock has gained momentum, reflecting investor optimism about its synergies and long-term growth potential.
Future outlook
Looking ahead, CNR has tempered its profit expectations for 2024, revising its forecast to low single-digit EPS growth. Despite these challenges, CNR is still committed to long-term profitability, leveraging its extensive network and efficiency-first approach. It also benefits from a healthy profit margin of 31.7%, as of its most recent quarter.
CP, on the other hand, is aiming high. Its tri-national network connects key ports and supply chains across North America, providing significant advantages for industries like automotive, grain, and energy. The company has shown an ability to scale quickly, and its recent earnings growth reflects solid execution on merger integration. While macroeconomic headwinds, such as proposed tariffs, could pose risks to cross-border trade, CP stock remains optimistic about capturing further market share in the coming years.
Dividends are another consideration. CNR offers a more attractive forward annual dividend yield of 2.2%, compared to CP stock’s 0.66%. CNR’s payout ratio of 39.4% signals that it has plenty of room to continue raising its dividend. In contrast, CP stock’s lower yield and 20.1% payout ratio suggest a more growth-oriented focus, with less emphasis on returning capital to shareholders.
Bottom line
Ultimately, the better buy depends on your investment goals. If you’re seeking a stable, dividend-paying stock with a long history of operational excellence, CNR is the more conservative choice. On the other hand, if you’re looking for a growth-oriented investment that capitalizes on the future of North American trade, CP stock may be the better pick. Both companies are leaders in their industry, and either could be a solid addition to a long-term portfolio depending on your risk tolerance and strategy.
