Canadian National Railway Banks on Dividends Amid Freight Challenges

Canadian National Railway CNI is supported by robust operational efficiency and a partnership with CSX Corporation CSX. Shareholder-friendly initiatives also bode well for the company. However, CNI is grappling with elevated expenses.

Reasons to Buy:

The partnership between Canadian National Railway and CSX strengthens North American freight connectivity by launching an intermodal rail service into Nashville, TN. The service moves international containers from Canada’s West Coast through Memphis directly into Nashville using a steel-wheel interchange, replacing the trucking leg. This all-rail solution speeds up deliveries, enhances reliability and offers shippers a more sustainable and efficient supply-chain option.

Operationally, early signs of recovery in freight volumes strengthen the investment case. Freight revenues, which make up nearly the entire top line, grew modestly in the first half of 2025, supported by gains in coal, grain, fertilizers and automotive. The uptick in revenue per RTM signals improving pricing power and efficiency. Taken together, CNI’s shareholder-friendly initiatives, resilient freight mix and signs of operational recovery reinforce its appeal as a steady long-term investment.

Canadian National Railway’s efforts to reward its shareholders through dividends and share buybacks are appreciated. The company’s consistent record of dividends and buybacks highlights its strong shareholder focus and disciplined capital allocation. With more than C$2 billion in annual dividend payouts and sizeable repurchase activity over the past three years, CNI has steadily returned cash to investors while maintaining flexibility through its NCIB program. The repurchases completed in 2025 further underline management’s confidence in the company’s earnings power and long-term outlook.

Some other dividend-paying stocks in the Zacks Transportation - Rail industry are Norfolk Southern NSC and Union Pacific UNP.

Norfolk Southern underscores its shareholder commitment with steady dividends and buybacks, returning $1.85 billion in 2023 and maintaining strong payouts in 2024. In August, the company paid out a quarterly dividend of $1.35 per share. It paid out dividends on its common stock for 172 consecutive quarters since its formation in 1982.

Union Pacific maintains a strong pro-shareholder stance, backed by a solid free cash flow. In 2023, it generated $1.54 billion in free cash flow and returned $3.9 billion to investors. Dividends have seen steady hikes, with the latest increase to $1.38 per share in July 2025. The company has paid out dividends for 126 consecutive years and, in the first half of 2025, returned $4.3 billion to shareholders through dividends and buybacks.

Dividend stocks generally belong to mature companies that are less susceptible to significant market swings and act as a hedge against uncertainty-induced stock market volatility, as is the case currently. They offer downside protection with their consistent increase in payouts. These companies have strong fundamentals like a sustainable business model, a long track of profitability, rising cash flows and a strong balance sheet.

CNI: Key Risks to Watch

Canadian National Railway faces mounting pressures on multiple fronts that can weigh on the bottom line and operational stability. Rising operating expenses, driven by higher labor costs and increased spending on purchased services and materials, have eroded margins.

Liquidity and leverage also present concerns. With a cash of C$216 million against the current debt of C$1.12 billion, the company lacks sufficient short-term liquidity, while long-term debt has climbed to C$19.3 billion in the second quarter of 2025.

Moreover, network disruptions from locomotive or labor shortages and other service constraints pose operational risks, impacting service reliability and shipment volumes. Together, these factors highlight key challenges that may pressure CNI’s bottom line and operational efficiency.

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This article originally published on Zacks Investment Research (zacks.com).

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