Canadian Pacific Railway Ltd. (TSX:CP) or Canadian National Railway (TSX:CNR) for Your TFSA?

Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP) and Canadian National Railway (TSX:CNR)(NYSE:CNI) have delivered impressive long-term results for shareholders. Is one a better bet today?

| More on:
railroad

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The railway companies play an important role in keeping the economy moving, and many investors prefer to hold at least one of the industry players in their portfolios.

Let’s take a look at Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP) and Canadian National Railway (TSX:CNR)(NYSE:CNI) to see if one is attractive today.

CP

CP recently signed new contracts with some of its unionized employees, avoiding a strike and shutdown of services that could have been a nightmare for investors and the economy as a whole. The new three-year deal with 1,300 signal workers, and four- to five-year agreements with 3,000 conductors and locomotive engineers should provide some stability to the entire company of 12,000 employees.

The company operates tracks across Canada and into the central United States as far as Kansas City. CP identifies its business groups as bulk, merchandise, and intermodal. Bulk represents 35% of revenue and includes grain, coal, potash, and other fertilizer shipments. Merchandise shipments account for 35% of revenue, and include forest products, energy, chemical, plastics, metals, minerals, automotive, and consumer products.

Intermodal generates 21% of revenue and refers to the container shipments transported by ships, railways, and trucks.

The company reported steady results for Q1 2018. Adjusted earnings per share rose 8% to $2.70 compared to Q1 2017. Revenue increased 4%. The Q1 operating ratio was 67.5%.

CP just raised its dividend by 15.5%. The new payout provides a yield of 1.1%.

A $10,000 investment in CP 20 years ago would be worth about $100,000 today with the dividends reinvested.

CN

CN’s rail network extends much deeper into the United States, enabling the company to connect to three coasts.

Management signed a new five-year contract with its 1,800 locomotive engineers in May, and the entire company has about 25,000 employees helping the company move more than $250 billion of goods each year.

CN’s business segments are similar to its competitor, but the mix is different, with merchandise shipments accounting for 49% of revenue, intermodal contributing 16%, and bulk kicking in 21%.

First-quarter revenue was pretty much flat on a year-over-year basis. Net income dropped 16%, and adjusted diluted earnings per share fell 13%, compared to 2017. A stronger Canadian dollar and bad weather conditions contributed to the weaker performance. The Q1 operating ratio was 67.8%.

The company now has a new CEO who is ramping up investment to upgrade the network infrastructure and help reduce backlogs in some of its segments. The $3.4 billion capital plan for 2018 is a record.

CN raised its dividend by 10% for 2018 and has a compound annual dividend-growth rate of better than 16% over the past two decades. The payout provides a yield of 1.7%.

Long-term investors have done well with CN stock. A $10,000 investment in the company 20 years ago would be worth more than $220,000 today with the dividends reinvested.

Is one a better bet?

Both CP and CN should continue to be reliable buy-and-hold picks for a TFSA portfolio. The two companies are trading at similar multiples, as CP has improved its efficiency to the point where the operating ratio is similar to CN. Squeezing more out of that metric will be tough, so the easy gains CP enjoyed in recent years might not be there going forward.

Despite the rough Q1 results, I would probably go with CN as the first pick today. The extensive rail network in the U.S. is an important asset, giving the company a key competitive edge. Past returns are no guarantee for future results, but CN has significantly outperformed CP over the long run.

Should you invest $1,000 in Restaurant Brands International right now?

Before you buy stock in Restaurant Brands International, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Restaurant Brands International wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,058.57!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 38 percentage points since 2013*.

See the Top Stocks * Returns as of 2/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stock mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Canadian National Railway is a recommendation of Stock Advisor Canada.

If You Thought Apple and Microsoft Were Big, You Need to Read This.

The steel industry produced the world's first $1 billion company in 1901, and it wasn't until 117 years later that technology giant Apple became the first-ever company to reach a $1 trillion valuation.

But what if I told you artificial intelligence (AI) is about to accelerate the pace of value creation? AI has the potential to produce several trillion-dollar companies in the future, and The Motley Fool is watching one very closely right now.

Don't fumble this potential wealth-building opportunity by navigating it alone. The Motley Fool has a proven track record of picking revolutionary growth stocks early, from Netflix to Amazon, so become a premium member today.

See the 'AI Supercycle' Stock

More on Stocks for Beginners

rail train
Dividend Stocks

Best Stock to Buy Right Now: CN Rail vs CP Rail?

Both these railway stocks have a strong future outlook, but which offers more value, and which more growth?

Read more »

Group of people network together with connected devices
Tech Stocks

If I Could Buy and Hold Only a Single Stock, This Would Be it

If there's one industry that's already proven itself, it's this one. And this tech stock is proving again and again…

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Stocks for Beginners

What to Know About 2 Canadian Mining Stocks for 2025

Mining stocks can be a strong investment, or a bit of a wild ride. So where do these two top…

Read more »

calculate and analyze stock
Dividend Stocks

Outlook for Restaurant Brands International Stock in 2025

QSR stock has had a turbulent few years, but investors may not want to count out the stock just yet.

Read more »

Beware of bad investing advice.
Stocks for Beginners

Top 5 Stock Market Mistakes for New Investors to Avoid

New investors can better build their wealth by avoiding these top stock market mistakes.

Read more »

Investor reading the newspaper
Stocks for Beginners

Invest for Tomorrow: 3 TSX Stocks to Build Lasting Wealth

Want stability and long-term growth? These three TSX stocks have proven their worth time and time again.

Read more »

nuclear power plant
Stocks for Beginners

What to Know About Canadian Infrastructure Stocks for 2025

Infrastructure companies are strong long-term investments no matter the market, and these three Canadian stocks look primed to grow.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution for Long-Term Gains

Whether it's infrastructure, real estate or tech, these three stocks offer a promising addition to your TFSA.

Read more »