1 Practically Perfect Canadian Stock Down 14% to Buy and Hold Forever

If you want perfection, this railway stock is one of the best buys to grab for a steal of a deal.

Amy Legate-Wolfe ❯

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published February 10, 8:45 pm EST

In the fast-moving world of investing, it’s easy to get caught up in short-term fluctuations. But the most successful investors know that the real gains come from identifying strong, fundamentally sound companies, and then holding them for the long haul. One such company is Canadian National Railway (TSX:CNR), a cornerstone of Canada’s transportation industry.

Right now, CNR is down about 14% in the last year, thus presenting a rare opportunity for long-term investors to grab shares at a discount. While some might see this as a warning sign, a closer look at the company’s financials, historical performance, and future outlook suggests that this is a practically perfect stock to buy and hold forever. With a wide economic moat, reliable cash flow, a growing dividend, and a critical role in North America’s supply chain, CNR stock remains one of Canada’s best investment opportunities.

A perfect stock

Canadian National Railway is not just another transportation company. It’s the backbone of Canadian and U.S. logistics. With a 20,000-mile rail network spanning Canada and deep into the U.S., CNR provides a critical link for industries. Ranging from energy to agriculture to manufacturing. Its efficient operations and strategic routes give it a major competitive edge.

Despite recent economic fluctuations, CNR continues to post solid financial results. In Q3 2024, the Canadian stock reported $4.1 billion in revenue, up 3% year-over-year. Operating income remained stable at $1.5 billion, and earnings per share (EPS) increased by 2% to $1.72. This steady growth is a testament to CNR’s resilience in different economic environments.

The Canadian stock faced some challenges in Q4 2024, with revenue dipping 3% to $4.4 billion and operating income dropping 10%. The operating ratio, a measure of efficiency, rose to 62.6%, reflecting slightly higher costs. However, diluted EPS remained strong at $1.82, showing that CNR continues to generate significant profits despite short-term pressures.

For the full 2024 fiscal year, CNR reported total revenue of $17.05 billion, a 1% increase from 2023. While operating income declined slightly, the company’s net profit margin remained high at 31.7%. And return on equity stood at an impressive 27.6%. These numbers highlight CNR’s efficiency and profitability, reinforcing its long-term investment appeal.

Plus a dividend

One of the biggest reasons investors love CNR is its consistent dividend growth. The Canadian stock currently offers a forward annual dividend of $3.55 per share, yielding 2.3%. This may not be the highest yield in the market, but it’s backed by a strong history of dividend increases and a payout ratio of just 48.2%. So the dividend is well-covered by earnings.

Over the past decade, CNR has consistently increased its dividend, making it a great pick for income investors looking for both stability and growth. The Canadian stock’s five-year average dividend yield of 1.8% suggests a strong commitment to shareholder returns. And with its steady cash flow, future dividend hikes are likely.

Future outlook

Looking ahead, CNR’s growth prospects remain solid. The Canadian stock is expected to increase earnings per share by 5.8% annually and grow revenue by 5.3% per year. These steady growth rates make it an attractive pick for conservative investors who want a stable, long-term compounder in their portfolio.

One of the biggest catalysts for growth is ongoing investment in rail infrastructure and automation. CNR has been focusing on making its network more efficient, reducing costs, and improving service. As demand for freight transport grows and businesses continue shifting to rail for its lower emissions, CNR is positioned to benefit from long-term secular trends in transportation and logistics.

Foolish takeaway

While some investors may hesitate to buy a stock that has recently dropped 14%, long-term investors should see this as a golden opportunity. CNR’s fundamentals remain rock solid, and its long-term growth trajectory is intact. With strong earnings, an attractive dividend, and a dominant market position, this is one of the best buy-and-hold stocks in Canada.