The Canadian railway stocks have been rolling higher this year, and while I don’t think the ascent is over quite yet, even as tariff threats add to the long list of uncertainties and shares look to flirt with a correction (a 10% drop from peak levels), I do think that investors might need to brace themselves now that momentum has turned a corner and the new valuation bakes in quite a bit more going right in an environment that’s far from a Golidlocks climate.
Shares of CN Rail (TSX: CNR) have been in the penalty box for quite a while prior to the 2026 run-up. And while playing the multi-year breakout in the stock likely led to swift losses for traders who decided to board at the wrong moment, I still think that CNR remains one of the better dividend growth gems on the market for investors looking for a place to park extra uninvested TFSA or RRSP cash.
Of course, the stock looks far less frothy after the 8% drawdown, with shares now trading at 21.8 times trailing price-to-earnings (P/E). Is that mildly expensive? Sure, but let’s not forget that the company’s earnings are on the right track now. What’s more, though, is that management is now guiding higher. And, in my view, there’s still plenty of upside when it comes to the operating ratio (OR), which has been steadily marching higher of late.
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CN Rail is back on the rails
Even as tariffs introduce more noise, I still expect demand to stay robust for the rest of the year. Even if freight volumes take a step backward, the company has an opportunity to make use of AI to improve asset utilization. Add the partnerships with other railways to improve connectivity into the equation, and I do like the direction that the rails are headed.
Undoubtedly, I’m sure CN Rail is still hungry to make a deal after missing out to one of its Canadian rivals on Kansas City Southern. Given regulatory unknowns, though, it’s just not clear if CN Rail will be able to expand its footprint further. Either way, I think recent agreements are a win-win-win kind of proposition that could help the industry move on from what’s been a fairly turbulent past couple of years.
For now, I think CN Rail’s breakout is postponed, rather than cancelled entirely. As such, I think the stock looks like a decent pick-up for those who may have missed the initial run-up. At the end of the day, the $103 billion transportation juggernaut has one of the widest economic moats out there and, with that, a dividend-growth profile (and streak) that looks pretty much unmatched.
The bottom line
With volumes marching higher again, the big question is what could happen if volumes stay robust while CN Rail drives its OR higher. In that scenario, I think the stock could be in for a real, sustained breakout that might take shares all the way to the $200 per-share mark. Time will tell if management can execute as new technologies look to help the rails level up their operating efficiencies.
