Canadian National Railway (TSX:CNR) has underperformed the TSX in the past two years. Contrarian investors are wondering if CN stock is now oversold and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividend growth and long-term total returns.
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Canadian National Railway
CNR trades near $131 per share at the time of writing. The stock is down 10% in 2025 and is way off the $180 it fetched at one point last year.
The decline over the past year and a half is due to a number of causes. In 2024, CN faced labour disputes at both the company and key ports. Disruptions to services caused by the shutdowns forced customers to find alternative options for moving their cargo. CN also faced delays in the summer of 2024 as a result of wildfires in Alberta.
The combination of the interruptions last year led to higher expenses and lower-than-expected revenue growth. In fact, revenue came in just slightly higher than in 2023, and adjusted net income fell.
At the start of 2025, CN provided a more upbeat outlook. Management initially expected the company to deliver gains in adjusted diluted earnings per share (EPS) of 10% to 15% compared to 2024. When CN reported the second-quarter (Q2) 2025 earnings results, however, management revised the earnings guidance lower. Uncertainty surrounding the impact of tariffs forced the company to reduce expectations for this year. CN now anticipates growth in adjusted diluted EPS to be less than 10%.
Risks
Economic headwinds should be expected in the near term until trade agreements are finalized between the United States and key trading partners, including Canada, Mexico, and China. The longer negotiations drag on, the more likely the economy is to slide into a recession as consumers and businesses reduce spending. This would be negative for CN.
A proposed rail merger in the United States between Union Pacific (UP) and Norfolk Southern (NS) could also shake up the industry. The net impact it would have on CN, however, isn’t clear. CN’s lines run from Canada south to the U.S. Gulf Coast. The UP merger with NS would create a single east-west rail carrier. CN has agreements in place with the U.S. rail operators, so those might simply remain in place.
Opportunity
CN remains very profitable, and investors should see dividends continue to rise. Shareholders received a dividend increase this year, and CN is taking advantage of the low share price to buy back up to 20 million shares under the current share-repurchase plan. The board raised the distribution in each of the past 29 years. The current dividend yield is 2.7%.
Capital investments remain on track for the year at $3.4 billion, so management isn’t pausing the growth program.
Any news of a trade deal between the U.S. and Canada, Mexico, or China should give the stock a nice boost. Long-term economic growth will drive up demand for CN’s services.
Time to buy?
The broader market is due for a pullback, so I wouldn’t back up the truck. However, contrarian investors might want to start nibbling on CNR at this level and look to add on any additional downside. Patience is required, but buying CN on meaningful dips has historically proven to be a savvy move.
