Canadian investors are searching for undervalued TSX stocks to add to their self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolios.
The TSX sits near its record high, but some Canadian giants have lagged the performance of the overall market and could rebound in the next couple of years.
Canadian National Railway Company
Canadian National Railway (TSX:CNR) trades near $135 per share at the time of writing. The stock is down about 11% over the past 12 months and is well off the $180 it fetched at one point last year.
Tariffs imposed by the United States on Canada and trade issues with other major trading partners, including China, are having an impact on CN and other North American rail operators.
CN’s extensive rail network connects customers to ports on both the Atlantic and Pacific coasts of Canada and down to the Gulf Coast in the United States. The company plays a vital role in the smooth operation of the Canadian and U.S. economies, carrying everything from cars, coal, and crude oil, to forestry products, fertilizer, and finished goods.
Ongoing uncertainty around how the trade negotiations between the United States and Canada will ultimately pan out is causing businesses to take a cautious approach. This is having an impact on CN’s operations in 2025 and forced management to reduce guidance earlier this year.
Returning more capital to shareholders
CN originally expected adjusted diluted earnings per share (EPS) to grow by 10% to 15% in 2025, but had to cut that back to lower than 10% in the second half of the year as a result of the tariffs. In the Q3 2025 earnings report, CN maintained the revised 2025 guidance, saying it expects adjusted diluted EPS growth to be in the mid to high single-digit range.
Capital expenditures for the year have held steady at around $3.4 billion. Revenue rose by 1% in Q3 compared to last year, while operating income increased 6% to $1.6 billion.
Free cash flow for the first nine months of 2025 increased 14% to $2.3 billion. This is good news for dividend investors and for the share buyback plan. CN is taking advantage of the lower share price to repurchase stock. In the third quarter, the company spent about $1 billion on share buybacks. The board has increased the dividend in each of the past 29 years. Investors should see the trend continue.
Looking ahead, management is trimming the capital plan for next year, with a target of around $2.8 billion. This will boost free cash flow in 2026.
Opportunities
As soon as a trade deal between the United States and Canada is finalized, the removal of tariff and trade uncertainty should provide a new tailwind for the stock as investors anticipate a jump in demand for CN’s services.
Risks
Trade negotiations between the United States and Canada are dragging out longer than many economists anticipated and there is an increased threat of an economic downturn in the next year, as a result. Weaker economic activity normally results in reduced demand for CN’s services.
A proposed merger in the United States between two of the country’s railways, Union Pacific and Northern Suffolk, is set to shake up the industry as it will create the first complete east-west rail service provider. CN’s routes run north-south in the United States, so the potential impact on CN is still unknown. Until regulators make a final decision on the deal, there could be some headwinds for rail stocks.
The bottom line
Near-term volatility is expected until the trade situation is resolved. That being said, CN remains very profitable and the stock price likely reflects most of the risks. Buying CN on significant pullbacks has historically proven to be a savvy move for contrarian investors.
If you have some cash to put to work in a buy-and-hold portfolio, this stock deserves to be on your radar.
The post 1 Magnificent Canadian Dividend Stock Down 11% to Buy and Hold for Decades appeared first on The Motley Fool Canada.
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More reading
- 1 No-Brainer Dividend Stock to Buy Now and Hold Forever
- A Dirt-Cheap Canadian Stock I’d Buy for the Next 24 Months
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- 2 Canadian Large-Cap Stocks to Buy for Decades of Growth and Dividends
- Why Railway Stocks Could Be Primed for a Big Recovery
The Motley Fool recommends Canadian National Railway. The Motley Fool has a disclosure policy. Fool contributor Andrew Walker has no position in any stock mentioned.
www.fool.ca (Article Sourced Website)
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