Canadian National Railway

The business

CN operates the only railway connecting Canada's Atlantic and Pacific coasts and the U.S. Gulf, hauling grain, forest products, intermodal containers, energy, metals and autos across roughly 20,000 route-miles.

It makes money on freight volumes and pricing, and its profitability is judged heavily on the operating ratio (operating expenses as a percentage of revenue — lower is better).

The moat

Railroads are a textbook wide moat: the track network is effectively impossible to replicate, and CN's tri-coastal footprint is unique.

High fixed costs plus pricing power over captive shippers produce durable, high-margin cash flows across cycles.

Financial snapshot

Most recent reported period : Q2 2026. Figures reflect the review date — confirm current numbers before acting.

Free cash flow yield & sustainable growth

Free cash flow yield : ≈3.5%TTM FCF ≈C$3.6B ÷ ≈C$105B market cap

CN is a strong, growing free-cash-flow generator: first-half 2026 free cash flow was C$1.84B, up 19% year over year, against roughly C$2.8B of planned 2026 capital spending, with management guiding to improving FCF conversion through the year.

At a premium rail multiple the starting FCF yield is only mid-single-digit, so the appeal is the quality and growth of that cash flow rather than a high entry yield. CN returns it through a rising dividend (raised ~3.2% to C$0.915 per quarter) plus ongoing buybacks.

Sustainable growth: 2026 guidance is low-single-digit volume (revenue-ton-mile) growth and mid-to-high-single-digit adjusted EPS growth — a realistic, self-funded pace for a mature wide-moat network, with buybacks adding to per-share growth.

See the full free-cash-flow yield ranking →

Valuation & what to watch

CN typically trades at a premium P/E to the broad market, reflecting its wide moat, pricing power and high returns on capital.

The valuation question is cyclical: rail volumes track the economy, so a soft Q1 (revenue down 1%) followed by a strong Q2 (+11%) shows how sensitive results — and the multiple — are to freight demand and the operating ratio.

Dividend

Raised its quarterly dividend about 3.2% to C$0.9150 per share for 2026 and launched a new buyback; CN pairs a steadily rising dividend with consistent repurchases and a conservative payout.

Risks & the bear case

• Freight volumes are cyclical and tied to grain harvests, commodity demand and the broader economy.
• Labour disruptions, weather and network incidents can dent quarters.
• Trade tensions and tariffs affect cross-border and export volumes.
• A premium multiple leaves less margin for operational or volume disappointment.

Recent developments

Q2 2026 revenue rose 11% to C$4.75B with an operating ratio of 62.5% and adjusted EPS up 11%; management raised full-year guidance after a soft Q1.

Verdict

A wide-moat, high-return-on-capital compounder — one of the highest-quality industrials in Canada — that trades at a premium and moves with the freight cycle. The bull case is durable pricing power and share buybacks; the bear case is cyclicality and valuation. Conviction: a quality core holding best bought on cyclical weakness.