Sunday , May 9 2021

Why this dividend growth stock is perfect for your TFSA account

Dividends can be a great way to generate revenue. Over time, dividend payments can contribute to substantial amounts of capital, especially when companies are carefully selected for their ability to increase dividends. Dividend-growing companies are also perfect for TFSA accounts, which are most appropriate for long-term investment strategy.

These criteria make up Canadian National Rail (TSX: CNR) (NYSE: CNI) is one of the best TSX shares for TSFA investors. As the largest railroad company in Canada, CNR has the largest market share in virtually indestructible industry. CNR has paid dividends every year since 1996 and has generally increased dividend payments from year to year.

Over the past four years CNR has increased its dividends by 33%. The company currently has a dividend yield of 4.82%, with a payout ratio of 23%, which should be well served by revenue-oriented investors and those seeking dividend growth shares that will be included in their TFSA. Consider two more reasons why CNR is a good investment option.

CNR is underestimated

There are good reasons to believe that CNR is currently underestimated. The current P / E companies are 12.85, which is lower than the TSX average. CNR stocks are also cheaper than shares in Canada's main competitor, Canadian Pacific Railways.

Buying a company's shares at a price lower than its internal value is always a good idea.

CNR works as a well lubricated machine

CNR's recent earnings reports are encouraging. The company recorded an increase in revenue, operating and net income and earnings per share. CNR also generates profit more efficiently. Return on equity increased by 13% in the last five years, while the net profit margin rose by 16% over the same period.

Although the CNR has always considered it one of the most efficient rail companies, the company has gone through some issues at the beginning of the year. The increase in demand caused the overcrowding of the CNR network, leading to several dissatisfied customers and falling stock prices.

However, CNR pledged to address this issue and increased spending on the capital budget to $ 3.2 billion, which was a record for the company. CNR also hired 400 guides during the first quarter.

The efforts of the CNR to return to the right way were rewarded. The company's earnings in the second quarter were excellent, and the stock price recovered from falling in the first quarter. Although CNR did not escape the recently very unstable stock market, testifying that the company responds to the crisis in CNR's way, it is an encouraging sign for the investors.

Bottom line

The CNR has demonstrated its ability to maintain profit growth and increase dividends, while resisting unexpected demand growth and maintaining efficiency at an optimum level. The company is also underestimated at the moment, which means that it is now a great time to buy stock of the railway diva. Investors TSFA should consider.

Spirited associate Prosper Bakiny has no position in these companies. David Gardner owns Canadian National Railways shares. Motley Fool owns Canadian National Railways shares. Canadian National Rail is a recommendation Stock Consultant Canada.

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