Canadian National Railway (TSX:CNR) Is the Perfect Dividend-Growth Stock to Start a TFSA

Beginners who are dipping their toes in the investment waters for the first time should strive to keep things simple.

It’s all too easy to grow overwhelmed by the information and options that are out there, and fatigue is a real phenomenon. New investors should look to quality dividend-growth stocks with wide moats and a means to increase their earnings at an acceptable rate over the next five years and beyond.

It’s hard for most analysts to project a company’s sales and earnings over the next year, let alone the next five years out. And that’s why it’s essential for investors to look to firms with long enough track records of outperformance with a focus placed upon that firm’s competitive position within its industry.

One of the best TFSA investments for all investors, new or seasoned, is Canadian National Railway (TSX:CNR)(NYSE:CNI), a wonderful investment with sky-high barriers to entry and a means to increase both sales and earnings at double-digit percentage rates for years, if not decades to come.

CN Rail is not only in a very favourable industry that allows the company a long-lasting, durable competitive advantage and a relative degree of pricing power, but it’s also the best operator in North America — not just because CN Rail has the most expansive rail network that spans all three North American coasts, but also because management has continued to operate at the highest of levels with an operating ratio and free cash flows that put most other smaller railroads to shame.

A business so good that anybody could run it

Warren Buffett says to buy a business that’s so good that anybody could run it.

In early 2018, CN Rail’s network congestion carried over from the prior year, and the former management team had a tough time getting operations rolling smoothly. Despite the poor management processes in place to deal with the incoming volumes (a good problem to have?), which ultimately led to the ousting of ex-CEO Luc Jobin, the company was in no means in dire shape with numbers that were satisfactory, to say the very least.

While poor management decisions did lead to a mild correction to shares, in the grander scheme of things, the dip was unremarkable, and no long-lasting damage was done to the company because of the sheer strength of its competitive position.

Fast forward to today, and new CEO J.J. Ruest has not only better equipped CN Rail to handle elevated capacities with 140 new locomotives and 80 miles of fresh double track infrastructure, but he’s invested in such initiatives without hurting the company’s stellar operating ratio, which currently stands at an applaud-worthy 61.9% (lower is better).

CN Rail reported its Q4 2018 results last week with adjusted EPS numbers of $1.49, two cents above the consensus, with a 80 bps improvement to its operating ratio. Although management was conservative with its forward-looking EPS growth guidance, now expecting low-double-digit numbers, I believe the bar is now set low enough such that the company could easily pole-vault over expectations for an upcoming quarter.

Foolish takeaway on CN Rail

The latest quarter was nothing to write home about as results were in line with expectations, but given the big volumes up ahead, I think CN Rail is a timely buy at this juncture. With crude by rail expected to prop up revenues moving forward, CN Rail’s top line could be propelled over the near term, so if you’ve got the room in your TFSA, you have my blessing to back up the truck.

Stay hungry. Stay Foolish.

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Fool contributor Joey Frenette owns shares of Canadian National Railway. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Canadian National Railway is a recommendation of Stock Advisor Canada.

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