Canadian National Railway (TSX:CNR) is among the largest railroad companies in the world. With a market cap of $92.8 billion, CNR stock has returned 2,490% to shareholders in the last 25 years. However, if we account for dividend reinvestments, cumulative returns are closer to 3,810%.
So, a $1,000 investment in the TSX stock in February 2000 would be close to $40,000 today, which shows us the benefits of staying invested in quality blue-chip stocks.
Despite these outsized gains, CNR stock trades 18% below all-time highs in February 2025. So, let’s see if you should invest in Canadian National Railway stock right now.
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Is CNR stock a good buy in February 2025?
During its fourth-quarter (Q4) earnings call, Canadian National Railway outlined its vision for sustainable, profitable growth. The TSX giant highlighted its unique position as North America’s only three-coast railroad network and its commitment to technological innovation.
CNR is a transportation giant which handles more than 300 million tons of cargo annually. Despite macro headwinds, labour uncertainty, and fluctuating fuel prices, it reported total revenues of $17 billion in 2024, compared to $16.8 billion in 2023.
CNR serves seven major ports across North America, with over 85% of traffic originating on its network and more than 65% both originating and terminating on its lines.
CN has heavily invested in technology and automation in response to industry-wide challenges. The company has deployed 11 autonomous track inspection cars and seven automated inspection portals across its network, supporting its goal of becoming North America’s safest railroad. These initiatives are part of CN’s broader strategy to improve operational efficiency while reducing costs.
Looking ahead to 2025, CN projects 10-15% adjusted diluted earnings-per-share growth over 2024 figures, with a planned capital expenditure of $3.4 billion. Its guidance assumes low to mid-single-digit revenue ton-mile growth, including modest economic expansion.
Canadian National Railway’s growing dividend
CN has maintained a strong track record of shareholder returns, marking its 29th consecutive year of dividend growth. Today, it pays shareholders an annual dividend of $3.38, up from $0.08 in 1997. In the last 28 years, its dividend payouts have risen by a compounded annual growth rate of over 14%, significantly enhancing the yield at cost.
Given its outstanding share count, CNR’s annual dividend expense is forecast at $2.1 billion in 2025. Comparatively, the TSX dividend stock is estimated to report a free cash flow (FCF) of $3.72 billion in 2025, indicating a payout ratio of 56%, providing it with enough room to raise dividends further.
Moreover, CN’s management emphasizes its strong balance sheet and strategic positioning for long-term growth, maintaining a targeted adjusted debt-to-adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio of 2.5.
Alternatively, its financial results in 2024 showcased a challenging operating environment:
- Operating ratio increased to 63.4% from 60.8% in 2023
- FCF decreased to $3.1 billion from $3.9 billion
- Adjusted return on invested capital declined to 13.1% from 14.5%
Is CNR stock undervalued?
Canadian National Railway is forecast to increase sales from $17 billion in 2024 to $17.92 billion in 2025 and $18.9 billion in 2026. Comparatively, adjusted earnings are forecast to expand from $7.1 per share in 2024 to $7.95 per share in 2025 and $8.89 per share in 2026.
So, priced at 5.4 times forward sales, 18.6 times forward earnings, and 26 times forward FCF, CNR stock is not too expensive. Analysts remain bullish and expect the TSX stock to report more than 12% over the next 12 months.
