Canadian National Railway's (TSE:CNR) Shareholders Will Receive A Bigger Dividend Than Last Year

Canadian National Railway Company's (TSE:CNR) dividend will be increasing to CA$0.73 on 31st of March. The announced payment will take the dividend yield to 1.7%, which is in line with the average for the industry.

See our latest analysis for Canadian National Railway

Canadian National Railway's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Canadian National Railway was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 2.8%. If the dividend continues on this path, the payout ratio could be 40% by next year, which we think can be pretty sustainable going forward.

Canadian National Railway Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from CA$0.65 to CA$2.93. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Has Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Canadian National Railway has seen EPS rising for the last five years, at 8.1% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

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. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Canadian National Railway that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list 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.