Now Is the Time to Buy This Dividend-Growth Stock

Canadian National Railway’s (TSX:CNR)(NYSE:CNI) stock is due for a rebound as it beat third-quarter estimates. Protect your portfolio with CN Rail.

| More on:
time is money compounding

Volatility has returned to the markets and investors are getting anxious. Over the past month, the TSX Composite Index has lost approximately 5% of its value. In such times, its best to look for safety and value.

Companies that have a storied history of dividend growth tend to outperform during times of turbulence. One company that can help investors protect their portfolios against a market crash is Canadian National Railway (TSX:CNR)(NYSE:CNI).

Topping estimates

After a tough start to the year, when CN Rail experienced logistical issues, the company has successfully righted itself. On Tuesday, it topped analysts’ estimates on both the top and bottom lines. Third-quarter earnings per share of $1.50 beat by $0.03 and revenues of $3.69 billion beat by $110 million. This represents growth of 15% and 14%, respectively, over the third quarter of last year.

Volume continued to trend upwards with revenue tonne miles (RTM) and carloads growing by 4% and 3%, respectively, year over year. Thanks to its impressive results, the company also decided to up its buyback plan. It now intends to purchase an additional 5.5 million shares for cancellation.

This is the perfect type of company where you want to park your money in times of uncertainty. It will continue to provide growth and income as you wait out the choppy markets.

Rising dividend

CN Rail is a Canadian Dividend Aristocrat, having raised dividends for 22 consecutive years. This places it among the top 10 dividend-growth companies in Canada. Don’t let its low yield of 1.63% trick you. It’s only this low because it has seen significant share price appreciation over the years. Over the past five years, CN Rail’s share price has grown by an average of 17%. This far exceeds the returns of the broader market.

When combined with a five-year history of double-digit dividend growth, CN Rail is a rare combination of growth and income. The best part is that investors can expect this trend to continue. In the first nine months of the year, the company generated $1.881 billion in free cash flow (FCF) and paid $1.001 billion in dividends. As dividends account for only 53% of FCF, CN Rail can comfortably raise dividends at a good pace.

Valuation

No company has been immune to the recent sell-off. CN Rail, however, has fared better than the TSX Index, shedding only 3.7% of its value. Trading at 11 times earnings, the company is cheap. Analysts have a one-year price target of $121.31, 12% upside from today’s price of $108.25.

If you missed out on your opportunity to pick it up on its early year struggles, don’t miss out this time. CN Rail is a buy.

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.

David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Fool contributor Mat Litalien is long Canadian National Railway. Canadian National Railway is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Dividend Stocks

Top Canadian Stocks to Buy Right Now With $1,000

Investing in stocks is not about timing but consistency. If you have $1,000 to invest, these stocks offer an attractive…

Read more »

cloud computing
Dividend Stocks

Is Manulife Stock a Buy for its 3.5% Dividend Yield?

Manulife stock has been a long-time dividend winner, but the average has come down over the last few years. So…

Read more »

Person holds banknotes of Canadian dollars
Dividend Stocks

This 7.5% Dividend Stock Pays Cash Every Single Month

Monthly dividend income can be a saviour, but especially when it provides passive income like this!

Read more »

jar with coins and plant
Dividend Stocks

2 High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These TSX stocks still offer attractive dividend yields.

Read more »

concept of real estate evaluation
Dividend Stocks

Invest $23,253 in This Stock for $110 in Monthly Passive Income

Dividend investors don’t need substantial capital to earn monthly passive income streams from an established dividend grower.

Read more »

Dividend Stocks

3 Mid-Cap Canadian Stocks That Offer Reliable Dividends

While blue-chip, large-cap stocks are the preferred choice for most conservative dividend investors, there are some solid picks in the…

Read more »

The letters AI glowing on a circuit board processor.
Dividend Stocks

Is OpenText Stock a Buy for Its 3.6% Dividend Yield?

OpenText stock has dropped 20% in the last year, yet now the company looks incredibly valuable, especially with a 3.6%…

Read more »

calculate and analyze stock
Dividend Stocks

How to Use Your TFSA to Earn $6,905.79 Per Year in Tax-Free Income

Put together a TFSA and this TSX stock, and you could create massive passive income from returns and dividends.

Read more »