Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor’s dream. However, when you’re an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company’s earnings paid out to shareholders; it’s often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Canadian National in Focus
Based in Montreal, Canadian National (CNI) is in the Transportation sector, and so far this year, shares have seen a price change of -2.53%. Currently paying a dividend of $0.59 per share, the company has a dividend yield of 2.04%. In comparison, the Transportation – Rail industry’s yield is 0.73%, while the S&P 500’s yield is 1.66%.
Taking a look at the company’s dividend growth, its current annualized dividend of $2.37 is up 5.3% from last year. Over the last 5 years, Canadian National has increased its dividend 5 times on a year-over-year basis for an average annual increase of 11.76%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company’s annual earnings per share that it pays out as a dividend. CN’s current payout ratio is 38%. This means it paid out 38% of its trailing 12-month EPS as dividend.
CNI is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2023 is $5.92 per share, which represents a year-over-year growth rate of 3.14%.
Bottom Line
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It’s important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it’s fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, CNI is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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Canadian National Railway Company (CNI): Free Stock Analysis Report
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