By: Matt @ HomeandPocket.com

January 4, 2025

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Yesterday, I initiated a NEW position into the Canadian National Railway Company (CNI).

This was a bit of an unexpected purchase. I was not planning on initiating a stake in CNI for a while. It’s not that I don’t like the company or its fundamentals. I simply had other companies on my radar.

The recent U.S. Tariffs placed on Canada this week, made the Stock appealing for new investors to jump in and scoop up shares at a small discount. As always, I initiated a new position by purchasing a single share to start. Here is a look at the company and potential long term dividend potential.

Canadian National Railway (CNI), one of the largest rail companies in Canada, is widely regarded as a reliable and stable choice for long-term investors, particularly those seeking both dividend income and growth potential.

Dividend Yield & History:

• Dividend Yield: As of February 2025, Canadian National Railway’s dividend yield is around 2% to 2.5%. While this may not be the highest yield available compared to other dividend-paying stocks, CNI’s track record and stability make it a solid choice for conservative, long-term investors.
• Consecutive Years Paying Dividends: CNI has an exceptional dividend track record. It has been paying dividends consecutively for over 25 years, making it a member of the Dividend Aristocrats in Canada, which are companies that have increased their dividends for 5 or more consecutive years. Over time, it has consistently increased its payouts, with strong growth, reflecting the company’s stable financial position and strong cash flow.

Dividend Growth:

CNI is known for increasing its dividend regularly. Over the past few years, its dividend growth rate has typically been in the 7-10% range annually, which is impressive and above the inflation rate. This allows investors to benefit from growing dividend income over time, which can be particularly appealing for those looking to build wealth through dividends.

Financial Strength & Stability:

• Strong Cash Flow: The company’s rail business generates substantial and stable cash flow, which supports its ability to continue paying and growing dividends even in tougher economic conditions.
• Low Debt Levels: CNI has a relatively low debt-to-equity ratio, which is a good sign for long-term dividend sustainability. With limited debt, the company has more flexibility in maintaining dividend payouts, reinvesting in its operations, or managing economic downturns.
• Monopoly-like Position: As one of only two major rail operators in Canada, CNI benefits from a dominant position in the North American market, especially in the transport of goods like agricultural products, metals, and oil. This gives CNI a strong competitive moat.

Growth Potential:

• Economic Moat: Rail transportation is capital intensive and requires substantial infrastructure, so CNI enjoys a competitive edge. Additionally, it has extensive operations spanning from Canada to the U.S., making it a critical player in North America’s supply chain.
• Strategic Investments: The company continually invests in improving its infrastructure, increasing operational efficiency, and expanding its network. This will likely support both revenue growth and long-term capital appreciation.
• Demand for Rail: The long-term demand for rail services should remain steady, driven by strong logistics needs in sectors like mining, energy, and agriculture. While not immune to economic downturns, rail is generally more stable compared to other sectors during cyclical recessions.

Risks:

• Economic Sensitivity: While CNI has a strong market position, its business is still susceptible to macroeconomic changes, such as economic recessions, changes in commodity prices, and trade policy changes. These factors could reduce demand for rail services.
• Regulatory Risk: As a major infrastructure operator, CNI is subject to government regulations, which could affect pricing, operations, or environmental policies.

Long-Term Investment Consideration:

For long-term investors looking for a stable, relatively low-risk investment with reliable dividends and potential for capital appreciation, Canadian National Railway (CNI) is an attractive option. The company’s:

• Consistent dividend payments,
• Regular dividend growth, and
• Strong competitive positioning in the North American rail market,

make it a solid choice for those focused on dividend income and long-term growth. While the yield is moderate, CNI’s ability to steadily grow its dividends and expand its business makes it a good fit for investors seeking a balance between income generation and capital appreciation over the long term.

The Two shares I purchased will add $4.70 annually to my dividend portfolio.