The best dividend stocks are those that offer you a growing payout over time, as well as the opportunity to generate long-term capital gains. One such TSX dividend stock is Canadian National Railway (TSX:CNR), which is valued at a market cap of $82.7 billion.
Among the largest railroad companies in the world, Canadian National Railway has returned 1,780% to shareholders since the start of 2001. After adjusting for dividends, cumulative returns are closer to 2,700%. It means that an investment of $1,000 in CNR stock back in 2001 would be worth nearly $28,000 today.
Despite these market-thumping returns, the blue-chip stock is down 25% from all-time highs and offers you a dividend yield of almost 3% in November 2025.
Is this TSX dividend stock a good buy?
Canadian National Railway delivered solid third-quarter results while navigating a challenging macroeconomic environment. In the September quarter, CNR increased adjusted earnings per share by 6% and improved its operating ratio by 170 basis points to 61.4%.
CEO Tracy Robinson acknowledged that the railroad had missed volume forecasts over the past two years but emphasized that the company has consistently delivered top-tier margins and strong operational performance.
Management stated that it will reduce capital spending from $3.35 billion in 2025 to $2.8 billion in 2026, bringing capital expenditures to the mid-teens as a percentage of sales and in line with its peers south of the border.
The lower spending reflects completion of major capacity expansion projects in Western Canada and locomotive fleet upgrades rather than a decline in growth investments. The company also plans to reduce management labour costs by $75 million while accelerating share buybacks, given attractive valuations.
Volumes in the bulk commodity segment remained strong, driven by record Canadian grain crops and improving metallurgical coal shipments from the reopened Quintette mine. Domestic intermodal surged 26% on strong service performance, while forest products faced pressure from weak housing starts. CNR expects limited volume growth in 2026 due to tariff headwinds in segments such as lumber.
Canadian National Railway’s free cash flow accelerated 14% year to date and should continue to improve in 2026 as capital spending resets. Bay Street estimates its free cash flow to increase from $3.15 billion in 2024 to $4.54 billion in 2029. In this period, its FCF margin is projected to widen from 18.5% to 21.6%.
CNR is expected to pay shareholders an annual dividend of $3.38 per share in 2025, up from $1.50 per share in 2016. Moreover, the payout is forecast to increase to $4.75 per share in 2029, more than tripling the effective yield over 13 years.
Is CNR stock undervalued?
Analysts tracking CNR stock forecast revenue to increase from $17.05 billion in 2024 to $21 billion in 2029. During this period, adjusted earnings per share are expected to increase from $7.10 to $10.90.
Today, the TSX stock trades at 16.9 times forward earnings, which is lower than its 10-year average of 19.8 times. If the earnings multiple for Canadian National Railway stock rises to 18 times, it should return 46% over the next three years. If we adjust for dividends, cumulative returns could be closer to 60%. Given consensus price targets, CNR stock trades at a 14% discount in November 2025.
