Recent Buy – Canadian National Railway

Canadian National Railway

One last buy before November concluded. This is a transaction I wasn’t expecting to place, but the crash in oil prices following the OPEC decision to not cut oil supply to the market caused repercussions elsewhere in other industries. I initiated a new position in Canadian National Railway (CNR.TO) (CNI). Canadian National Railway is the larger of the two Canadian railroad companies and the second largest publicly traded railroad companies in North America. The company commands 20,000 miles of tracks and is strategically well placed to move oil from Alberta, the Bakken fields and to/from the refineries in the Gulf Coast. A holding of Bill Gates’ Cascade Investments, this stock has made Mr. Gates and his investment firm very rich over the years. I have initiated with a position of 20 shares in the Canadian listed stock, which adds C$20.00 to my dividend income annually going forward.

The Case for Railroads

Railroads are the pulse of the economy. Whether transporting crude, lumber, merchandise, agricultural or industrial products, railroads are what keeps the economy moving. While the transportation for entities such as coal (which used to be the largest users of railroad service a few years ago) have fallen due to the fall in crude prices and rise of green energy alternatives, the transportation need for crude has risen significantly. North America is going through an energy revolution with the rise of crude production in Alberta, the Bakken fields in North Dakota and the Eagle Shale. While pipelines are the largest competitors for crude transportation, the immediate lack of infrastructure spells good news for the railroads.

Canadian National


Top-line growth has continued to increase year over year for the past 10 years, with the exception of the year 2009, where the company saw the effects of the recession. Earnings per share (EPS) and Free Cash Flow (FCF) remain stable and have maintained the uptrend over the years.

CNR Financials

CNR.TO/CNI – Financials

CNR Outstanding Shares

CNR.TO/CNI Outstanding Shares


CNR.TO pays $1.00 in dividends annually, and at the time of this writing, yields a modest 1.23%. The Canadian National Railway is a Dividend Contender, having raised dividends for 17 years in a row. The 1/3/5/10-year dividend growth rates (DGR) are 10.7/16.6/13.9/17.4%. The EPS payout ratio is currently at 27% and FCF payout ratio is 46%. There is still plenty of room for dividend increases over the coming years.

CNR Dividends

CNR.TO/CNI Dividends

Recent Buy Decision

  • Railroads are the pulse of the economy and are critical in the transportation of industrial, lumber, crude, merchandise and agricultural products. An essential part of every portfolio, railroads had been missing from mine, and I decided that this was as good a time as any.
  • A wide moat industry – the players are well established and it is hard for upstarts to disrupt the incumbents
  • CNR has a very strategically well diverse network servicing the Pacific, Atlantic and Gulf coasts.
  • Dividend growth rate is stellar in most major railroad companies, even though initial starting yield is low.


  • The stock is currently not cheap. At PE 22, the stock is overvalued. However, I am investing for the long term and a strong company like CNR is hard to find at cheap prices. I will be averaging down on this cost basis over the coming months/years.
  • The crash in oil presents some headwinds for the railroads. While the running costs decrease due to fall in oil prices, the bulk of payload is crude. The crash will probably result in cutbacks, M&A, terminations in oil production companies, meaning that the revenues for the railroads might be affected over the coming quarters.
  • Development of pipelines presents more headwinds. Transporting via pipelines is cheaper, safer and more reliable (no delays due to weather or other unforeseen circumstances) and railroads will feel the pinch once more infrastructure in the ground.

Further Reading

Read this full dividend stock analysis for details on the value of the company, including more detailed outlook, advantages and disadvantages to the industry.

21 thoughts on “Recent Buy – Canadian National Railway

  1. Ooooo, very good choice! CNI is possibly my favorite railroad of the 6 I follow. It will treat you well as the decades progress. CNI is too overvalued for me personally, but I want to join you as a shareholder someday.

    • Its not cheap, DD. I paid a bit of a permium on this stock…but in the long run, a few bucks shouldnt matter. I will be looking to average down when the stock gets cheaper. The company is well run for sure…just yesterday there was a poll from shippers and they were complaining about how the service from railroads has slipped over the years…and of the lot, CN was rated the best service, with UNP a close second. Its anecdotal, but good to know that clients are happy.


  2. Good buy R2R! It’s an interesting choice, as most of us have been scooping up oil stocks, but nevertheless, one that will certainly treat you well for years to come. I like that you included some possible issues for the future, such as expansion of pipelines. Personally, I don’t see trains going away anytime soon, as they provide a reliable and often cost effective solution to mass transport. I’ll be looking to add in this sector in the future.

    • Hi Agent,
      It was hard for me not to buy yet another energy stock, but considering that my portfolio was almost 17% in energy, I decided that I should look elsewhere. Glad you like that I pointed to the risks…its important to realize that I think. While oil transportation is just a small part of carloads, that is where a lot of growth is projected to come from. Crude-by-rail has seen immense growth over the last couple of years and is expected to grow further. But as the pipeline infrastructure increases, that might put a thorn in for the railroads.

      Best wishes

    • Thanks Henry,
      Most railroads are trading at a premium…so its not cheap. Decided to initiate to get some skin in…I will be adding to my position when theres a correction.

      Thanks for stopping by

  3. I noticed that the railroads (I watch UNP and NSC, in particular) dipped after OPEC’s decision not to cut production. I held off, hoping they would drop further, but it seems like both have bounced back since then.

    Oh well. You win some, you lose some.

    • Ive looked at them closely too…its really hard to decide which ones the best – between UNP, NSC and CNI. Ive initiated in CNI for now..hopefully I’ll add the other(s) later.

      Best wishes

  4. R2R,

    Love the railroads. I can’t think of a business with a higher barrier to entry.

    They’re not cheap here, but should be great long-term investments. I would love to expand beyond just NSC at some point. Like Monopoly, I want to “own them all”. 🙂

    Enjoy those railroad dividends!

    Best regards.

  5. RM2R,

    Whoa – nice purchase there – love the payout ratio and the dividend growth rates for sure – nice add to your dividend income portfolio. If they drop in price, I can see why you’d scoop more up, P/E a smidge higher here, but at least you are putting your money to work, NOW! Keep us updated with what you do!


    • Agreed that the PE is a tad high. CNI’s div increase announcement comes in Jan….so, hopefully that will give it a bit of a bump. Still…I know that I am overpaying by a bit right now but Im ok with that. Thanks for stopping by and the comment.


  6. Great minds must think along the same lines! I too just purchased stock in railroads (UNP). I also agree that while the price paid might seem high, in the long run, especially after averaging down the cost, it will be a wise decision. Good job!

    – HMB

  7. solid buy!

    Where i lived in Saskatchewan at the time it was a railway town, and CN workers do well for themselves out there. I’m sure if a company can treat their employees that good I couldn’t only imagine how good they treat their shareholders 😉

    Even though its a tad bit pricey, in the big picture you’ll be happy you made this purchase today!

    thanks for sharing man!


    • Thanks Ace,
      Ive heard good things about CN as well. I met a few people who worked for it and had really good things to say. I look forward to owning it for a very long time.

      Thanks for stopping by and sharing your thoughts

  8. Hi R2R,

    Excellent buy! I have also just invested in a position with CNR during a minor dip. I don’t see CNR dipping in a drastic way unless the oil energy really brings it down. I have also been keeping an eye out for Canadian Pacific Railway too but the numbers suggests that CNR is the better investment. : )

    • Jeff,
      I agree. The crude-by-rail has been a growth story for a couple of years and had a bright future until this oil price crash came along. I’ll keep an eye on the railroads. The other two that I am interested in are: UNP and NSC. Looking to pick those up if they get cheaper.


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