Recent Buy – Canadian National Railway

Canadian National Railway

I decided to add to my 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 added 20 shares in the Canadian listed stock, which adds C$20.00 to my dividend income annually going forward. The company is scheduled to release its earnings report tomorrow after market close and is also expected to raise 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 make a small portion of my portfolio and I decided to add to my position.
  • 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.

Risks

  • The stock is currently not cheap. At PE over 23, 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 growth is crude oil. 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 is 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.

Full Disclosure: Long CNR.TO. My full portfolio is available here.

9 thoughts on “Recent Buy – Canadian National Railway

    • Lanny,
      Thats what Im thinking. Over the course of next few years (or even decades), it wont matter if I paid $85 for $80 for the stock. Of course, the stock drops the day after I buy it 😉

      R2R

  1. I am fond of railroads. There is an allure to riding around the country( or countries 😉 ) seeing everything while hauling 200 carts full of something!

    With that said, I am only invested in NSC, but like the railroads as an investment. I will need to watch CNI and see how the fall in oil prices affect shipments. I wonder how much it will in the short term (1yr) because the wells that are drilled are still going to be running (til their dry) and they need to move that oil out of there.

    Good addition!

    • ILG,
      NSC is also a company I am keeping an eye on. I am torn between UNP and NSC as investments for my next railroad. They are both well run and its really hard to figure out which one is better than the other.
      I wonder about the short term impact as well. If they get really attractive, I just see it as a buying opportunity. Lets hope the market gets irrational 🙂

      Thanks for stopping by and the comment.
      R2R

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