Andrew has an MBA and has been writing for The Motley Fool Canada since 2014. As a contrarian investor, Andrew seeks out dividend opportunities the market is missing. He is a big fan of harnessing the power of compounding to grow a portfolio for retirement.
Canadian National Railway (TSX:CNR) is up about 15% in the past three months. TSX investors who missed the rally are wondering if CNR stock is still cheap and good to buy for a self-directed Registered Retirement Savings Plan (RRSP) portfolio targeting total returns.
CNR stock price
CN trades near $166.50 at the time of writing. That’s down about $3 per share in the past week but not far from the record high just above $172 the stock reached in late 2022 and comfortably off the 2023 low near $143.
CNR tends to hold up relatively well when there is economic turbulence. The company serves an important role in ensuring the smooth operation of the Canadian and American economies with a strategic network of rail routes that connect the Atlantic and Pacific coasts of Canada with the Gulf of Mexico in the United States.
Over the past three years, CN has demonstrated its ability to pass rising costs through to customers. This is important for investors to keep in mind when searching for businesses that can effectively navigate periods of high inflation. CN is also a good option for investors who want to get exposure to the U.S. economy through Canadian stocks. The railway generates revenue in both American and Canadian dollars. When the greenback surges in value against the loonie, there can be a nice boost to the bottom line.
Risks?
A deep global economic slowdown would have an impact on demand for CN’s services as the company transports a wide range of commodities and finished products. Erratic weather in Canada can damage or block rail routes. Disruptions occurring in global shipping networks can impact volumes or cause bottlenecks at ports. CN’s connection to key ports on three coasts helps it to adjust to these disruptions, but it isn’t immune to upheaval.
Dividends
CN just announced a 7% increase to the dividend for 2024. The company has a great track record of steady dividend growth since it went public in the mid-1990s. At the current share price, the dividend provides a 2% dividend yield.
Outlook
Rate hikes by the central banks started having an impact through 2023. The railway reported a 2% decrease in overall revenue for 2023 compared to 2022. Adjusted net income slipped 7%.
Despite the headwinds, CN says it expects diluted adjusted earnings per share (EPS) to grow by 10% in 2024 and by a compounded annual rate of 10-15% for the 2024 to 2026 timeframe. Volumes are expected to grow at a faster pace than economic growth, and CN plans to increase pricing above rail inflation.
Is CN a good stock to buy now?
A quick look at the long-term chart suggests that buy-and-hold investors should be comfortable putting the stock in their RRSP at this level and should take advantage of pullbacks to add to the position. Near-term turbulence should be expected, but the outlook for the medium term looks positive, and CN has a proven history of delivering attractive total returns for retirement investors.
RRSP investors focused on total returns; however, they should put CNR on their radars. The stock is probably fully valued today, but it could still go higher in the coming months if the broader market extends the recent rally. If you already own the stock, it makes sense to hold today.
Canadian National Railway has 8.14% upside potential, based on the analysts' average price target. Canadian National Railway has a consensus rating of Hold which is based on 5 buy ratings, 11 hold ratings and 1 sell ratings. The average price target for Canadian National Railway is C$187.03.
As of 2024-05-22, the Fair Value of Canadian National Railway Co (CNR.TO) is 58.46 CAD. This value is based on the Peter Lynch's Fair Value formula. With the current market price of 173.19 CAD, the upside of Canadian National Railway Co is -66.2%.
Conn's has 47.06% upside potential, based on the analysts' average price target. Conn's has a consensus rating of Moderate Buy which is based on 1 buy ratings, 0 hold ratings and 0 sell ratings. The average price target for Conn's is $5.50.
Currently there's no upside potential for COMM, based on the analysts' average price target. CommScope Holding has a conensus rating of Moderate Sell which is based on 0 buy ratings, 4 hold ratings and 2 sell ratings. The average price target for CommScope Holding is $1.25.
Canadian National Railway stock prediction for 1 year from now: $ 142.41 (12.35%) Canadian National Railway stock forecast for 2025: $ 137.60 (8.56%) Canadian National Railway stock prediction for 2030: $ 207.48 (63.69%)
Canadian National Railway is a dividend paying company with a current yield of 1.95% that is well covered by earnings. Next payment date is on 28th June, 2024 with an ex-dividend date of 7th June, 2024.
With the current market price of 172.57 CAD, the upside of Canadian National Railway Co is -1.1%. The range of the Intrinsic Value is 114.08 - 317.1 CAD.
The further the price/fair value ratio rises above 1.00, the more the median stock is overvalued. A ratio below 1.00 indicates that the stock's price is lower than our estimate of its fair value. The further it moves below 1.00, the more the median stock is undervalued.
Although it's never too late to start saving for retirement, there are advantages to starting to contribute to your RRSP early. Compound growth occurs when income is earned not only on the funds you contribute to your RRSP, but also on the reinvested income from those original contributions.
You will generally be better off investing in an RRSP, regardless of the type of investment you choose or the rate of return, if your current marginal tax rate remains the same (or decreases) during the time you are investing in the RRSP.
We'll parse through some arguments against contributing to an RRSP for certain parts of the population. In particular, younger or lower-income investors likely have many alternatives they should consider first. One of the biggest downsides of the RRSP is that the money is difficult to access until retirement.
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