Canadian National Railway (TSE:CNR) Is Paying Out A Larger Dividend Than Last Year

Canadian National Railway Company (TSE:CNR) has announced that it will be increasing its periodic dividend on the 31st of March to CA$0.8875, which will be 5.0% higher than last year's comparable payment amount of CA$0.845. This will take the dividend yield to an attractive 2.3%, providing a nice boost to shareholder returns.

Check out our latest analysis for Canadian National Railway

Canadian National Railway's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend was quite easily covered by Canadian National Railway's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

The next year is set to see EPS grow by 40.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which is in the range that makes us comfortable with the sustainability of the dividend.

Canadian National Railway Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of CA$1.00 in 2015 to the most recent total annual payment of CA$3.38. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. Earnings have grown at around 3.9% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 3.9% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This could mean the dividend doesn't have the growth potential we look for going into the future.

We Really Like Canadian National Railway's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Canadian National Railway that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.