The only thing better than a dividend stock that has a nice upfront yield or a lengthy track record of generous dividend increases is a dividend grower behind a firm that actually has been improving its fundamentals and growth story along the way. At the end of the day, you need an actual growing business to keep that dividend growth engine humming strong.
Without it, you could be looking at a slow-growing dividend, a dividend that’s to remain as-is for the long haul, or even a dividend that might face a trimming down the road if the business starts seeing negative growth or if investors anticipate a contraction in the business. Any way you look at it, the business itself, I believe, matters far more than what its stock yields or how long or frequently it has been increasing that payout.
In this piece, we’ll look at a promising dividend grower that’s actually starting to get rolling again, and, with that, it might be ready to keep on raising the bar on the now generous dividend. A name like CN Rail (TSX: CNR) is renowned for its lengthy dividend growth track record. It has a wide economic moat and some of the best-defended cash flow streams out there.
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CN Rail
That said, the shares entered a bit of an industry drought in recent years that the firm only recently climbed out of. Indeed, industrial downturns can be hard to break out of. More recently, shares of CNR have been back on the ascendancy, up close to 26% in six months or around 39% in the past year.
Indeed, it was easy to miss the upward move. But the good news is shares are still quite cheap at 22.6 times trailing price-to-earnings (P/E), and the yield isn’t at all bad at 2.1%. With the firm experiencing some operating momentum and decent results for a change, I do think the dividend growth engine is back in high gear along with the stock.
While time will tell how the latest breakout fares, I certainly wouldn’t want to stand in the way of the freight train, especially following its intriguing United Pacific (NYSE: UNP) agreement, which stands to open doors for both companies. Of course, a merger would probably be too sizeable to be given the green light by regulators. But, at the same time, the agreement could be a fantastic way to benefit both firms as they look to work together to tackle bottlenecks, especially at major hubs.
Add the rise of AI into the equation and the rails, as a whole, stand to be far better-optimized businesses. From automation to routing, I do think that AI is the under-the-radar tailwind that many may discount with names like CN Rail.
As industry tailwinds present themselves while railways look to take on a more collaborative approach, it’s hard not to like CNR stock on a breakout, whether you’re in it for the earnings growth, the decent 2.1% yield, or dividend growth potential over the next five years and beyond.
