Canadian National Railway vs. CP Rail: Here’s Which Stock I’d Buy

The North American economy is on the rebound. Investors should look to rail stocks like Canadian National Railway (TSX:CNR)(NYSE:CNI) today.

| More on:

The S&P/TSX Composite Index shed 19 points on May 6. Canada’s economy posted a solid rebound in the first quarter, but there is still unease in the air. Investors have gorged on gains in the North American market since the pullback in March 2020. This may be a good time to exercise caution. Top Canadian rail companies are renowned for their stability. Today, I want to compare Canadian National Railway (TSX:CNR)(NYSE:CNI) and CP Rail (TSX:CP)(NYSE:CP). Which is the better buy? Let’s jump in.

How does Canadian National Railway stock look in early May?

Canadian National Railway is a Montreal-based company that is engaged in the rail and related transportation business. Its shares have dropped 4.3% in 2021 as of close on May 6. However, the stock is up 18% from the prior year. The company released its first-quarter 2021 results on April 26.

Management remained confident that Canadian National Railway was well positioned to drive USMCA growth, as the North American economy rebounds. Operating income rose 9% from the prior year to $1.32 billion. Meanwhile, train length increased by 5% and fuel efficiency improved by 4%. Canadian National Railway said that it was targeting double-digit adjusted diluted EPS growth for 2021.

Canadian National Railway stock possesses a solid price-to-earnings (P/E) ratio of 27. It recently announced a second-quarter 2021 dividend of $0.615. That represents a modest 1.8% yield.

Here’s why you shouldn’t sleep on CP Rail

CP Rail is a Calgary-based company that owns and operates a transcontinental freight railway across North America. Its shares are up 7% in the year-to-date period as of close on May 6. The stock has climbed 50% from the prior year. Investors got a look at its first batch of 2021 results on April 21.

Revenues fell 4% from the prior year to $1.96 billion. However, the first quarter was still a success for CP Rail, as it benefited from strong demand across bulk, merchandise, and domestic intermodal. Adjusted diluted earnings per share rose 1% year over year to $4.48. CP Rail is projecting double-digit adjusted diluted EPS growth over the previous year. Meanwhile, it anticipates high single-digit volume growth, as measured in RTMs.

CP Rail stock last had a favourable P/E ratio of 24. It last paid out a quarterly dividend of $0.19 per share. This represents a meagre 0.8% yield.

Which stock is the better buy?

Canadian National Railway stock and CP Rail have both proven resilient over the past year. These transportation giants are in a great position to benefit from a North American economy on the rebound. Predictably, the debate between the two is a close call. However, I’m sticking with Canadian National Railway over CP Rail in early May.

The former is close in terms of its value and it offers a superior dividend yield. Moreover, Canadian National Railway put together a better first quarter and is projecting strong growth going forward. I’m looking to stash this stock going forward.

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 Ambrose O'Callaghan has no position in any of the stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway.

More on Investing

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

Hourglass and stock price chart
Stock Market

It’s Not Too Late: Invest in These TSX Growth Stocks Now

Solid fundamentals of these top TSX growth stocks could help them maintain strong upward momentum in the years to come.

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

stocks climbing green bull market
Stocks for Beginners

3 TSX Stocks Soaring Higher With No Signs of Slowing

Don't ignore stocks just because they look like they're at a high price. Instead, see exactly why they've driven so…

Read more »

dividends can compound over time
Bank Stocks

Is TD Bank Stock a Buy for Its 5.2% Dividend Yield?

TD Bank stock offers a rare 5.2% dividend yield—can it rebound from challenges and reward contrarian investors? Here's what to…

Read more »

chart reflected in eyeglass lenses
Investing

How Should a Beginner Invest in Stocks? Start With This Index Fund

This Vanguard index fund is the perfect way to start a Canadian investment portfolio.

Read more »

analyze data
Bank Stocks

Is BMO Stock a Buy for its 4.7% Dividend Yield?

Bank of Montreal is up 20% since late August. Are more gains on the way?

Read more »