CNR Stock: Buy, Sell, or Hold?

rail train
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Written by Chris MacDonald at The Motley Fool Canada

Canadian National Railway (TSX:CNR) is certainly among the top Canadian growth stocks in many portfolios. Indeed, the company’s long-term stock chart is a sight to behold and reflects the rather consistent long-term trajectory CNR stock has provided investors for a long time.

That said, CNR stock has underperformed this year, losing 8% of its value since the beginning of the year. A worsening revenue outlook and the potential for an incoming recession have some investors bracing for near-term impact.

So, is Canadian National a long-term buy or a stock to remain cautious about for the time being? Here’s why it can be a bit of both for investors right now.

Partnerships continue to create shareholder value

One of the key reasons I believe Canadian National Railway is one of the best North American rail operators is the ability of the company’s management team to create value via partnerships in this sector. There are two recent deals made by CNR I think are worth pointing out.

Earlier this month, it was reported that Canadian National Railway had acquired a stake in the Central Nova Scotia Railway from Genesee & Wyoming Inc. This includes around 145 miles of active railway tracks, which will enable the company to improve its services to its existing customers on this line.

It will also help CNR improve its presence in Eastern Canada and increase its share in the North American market.

Additionally, late last month, Canadian National announced that the company has renewed and expanded its long-term transportation agreement with AltaGas. This new deal will enable Canadian National Railways to leverage its access to the Port of Prince Rupert. It also offers top-notch import and export terminals and reduced port congestion, which can enable Canadian National to effectively reduce its transit time to key markets.

Dividend remains healthy

For the fourth quarter, CNR has declared a dividend payout of $0.79 per common share, which will be disbursed on Dec. 28 to shareholders of record on Dec. 6. This dividend payment amounts to a payout ratio a bit above 42%, which is certainly healthy. Additionally, this distribution translates into a yield of 2.1%, far higher than the sector average and that of other key peers over time.

Thus, Canadian National is more than just a company investors pick up for its long-term growth profile. Rather, this is a dividend-growth play worth considering on its own fundamental merits.

Bottom line

Given the above-mentioned factors, Canadian National Railway has adequate prospects to generate profits in the long run. Additionally, the agreements that it has signed will enable it to significantly expand its operations in the North American market.

Now, of course, near-term volatility can, and likely will, materialize. The fact that CNR stock has underperformed the market this year shouldn’t be a surprise to investors who look at various economic factors.

That said, those taking a truly long-term view of the North American economy may certainly view this recent selloff as a buying opportunity. That’s how I’m viewing this stock right now.

The post CNR Stock: Buy, Sell, or Hold? appeared first on The Motley Fool Canada.

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Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool recommends Canadian National Railway. The Motley Fool has a disclosure policy.