I’ve always liked railroad stocks; they are the backbone of North America, and they’re very good at making money. Often in this column we consider the stock market performance of Union Pacific Corporation (NYSE/UNP). I firmly believe that this company will continue to be a winner for investors.
As part of an ongoing series in this column, we’ve been looking at some of the best long-term performers the stock market has to offer. So far, we’ve considered PepsiCo, Inc. (NYSE/PEP), Union Pacific, and Colgate-Palmolive Company (NYSE/CL). While a track record can’t tell you where a stock is going to go in the future, for me, it lends a lot of weight to making a new investment decision. What I’m trying to find are great, dividend paying stocks that investors can accumulate when they’re down. If a stock has a history of recovering strongly from periods of price weakness, this lends a lot of credibility to its story.
Looking at railroad stocks specifically, one of the best-performing companies on the stock market has been Canadian National Railway Company (NYSE/CNI), which trades on both the New York and Toronto stock exchanges. Among railroad stocks, this company’s long-term wealth creation on the stock market is unmatched. The company’s dividend yield isn’t as large as other railroad stocks, but its capital gains are very impressive. The company’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
This stock has basically been going straight up since the stock market correction in 2008/2009. On a split-adjusted basis, the stock was worth approximately $50.00 a share at the beginning of 2008, $20.00 a share in 2004, $10.00 a share in 2000, and $6.00 a share in 1996. Who said you can’t make money with old businesses like railroad stocks?
On the stock market, Canadian National Railway (CN) has a track record that can’t be beat by other railroad stocks. The company’s position is unique within the group, as it owns track all across Canada and straight down the middle of the U.S. to the Gulf Coast. The size of this infrastructure in two countries is unique and creates awesome economies of scale that have proven to benefit shareholders very well.
CN is the kind of company that I think blue chip stock market investors can consider when it’s down in price. Of course, this stock market winner isn’t down in price very often, because business is so good. Although economic forecasting is glorified guesswork, the Federal Reserve recently announced that it expects the U.S. economy to grow about 2.5% this year and 3.5% in 2014. If this economic recovery actually happens, which industry will be the first to benefit? It will be the railroad sector, and railroad stocks are some of the best large-cap companies that a stock market investor can consider.
Warren Buffett picked up on this trend a few years ago and bought out Burlington Northern Santa Fe entirely. (See “A Top Stock with Increasing Dividends and Record Profits.”) This was a very good move, and I’m sure it’s highly profitable for his holding company. I think railroad stocks are going to do very well over the next few years, especially as agricultural commodities rise in value. I don’t have a sense as to where the stock market might go, but one thing I wouldn’t do is bet against railroad stocks. The old economy is back, and it’s going to make a lot more money for shareholders.