Canadian National Railway (TSX:CNR) is a dominant player in North American transportation, with a rail network stretching across Canada and into the U.S. midwest. As one of only two publicly traded Class I railways in Canada, it plays a key role in connecting Canada's east and west coasts with the U.S. Gulf Coast. But where will its stock stand in the next one, three, and five years? Let's take a deeper look at its current performance and future prospects.

Recent performance

CNR is a resilient business. In the trailing 12 months, it generated $17.1 billion in revenue, producing a gross profit of $7.1 billion, which equates to a solid gross margin of 41.5%. Operating income reached nearly $7 billion with a margin of 40.6%, and net income came in at $5.4 billion, representing a net margin of 31.7%. The company's earnings before interest, taxes, depreciation, and amortization, or EBITDA (a common cash flow proxy), stood at $8.9 billion, with an EBITDA margin of 52.1%.

Despite recent disruptions from labour disputes and wildfires impacting its operations, CNR has shown its ability to weather storms. Even during the pandemic year of 2020, when the global economy took a major hit, CNR maintained a strong performance with revenues of $13.8 billion, gross profits of $5.8 billion, and a net income of $3.5 billion.

CNR's financials reveal a steady and durable profit engine, which is essential for its long-term stability. As a core player in the Canadian and U.S. freight sectors, it provides critical services that are less cyclical and continue to be in demand through various economic conditions.

Solid historical growth and dividends

When looking at its growth over the past decade, Canadian National Railway has delivered steady progress. Over the last 10 years, the company achieved solid annual growth rates: revenue was up 7.4%, while its operating income grew by 8.1%. Diluted earnings per share (EPS) rose by 10.7%, and EBITDA expanded by 8.3%. Additionally, CNR has been a strong dividend payer, increasing its payout with a compound annual growth rate (CAGR) of 13.9%.

CNR's ability to reward shareholders with a growing dividend over such an extended period demonstrates its financial health and commitment to returning value to investors. In fact, the company has raised its dividend for 28 consecutive years, which adds to its appeal for dividend-focused investors.

However, despite these strong fundamentals, CNR's stock performance has been less impressive recently. Over the last year, CNR's stock returned only 1.4%, significantly trailing the broader Canadian stock market's 26% return. The stock's 16% decline from its peak earlier this year may signal a potential buying opportunity for those looking at the long-term potential of this blue-chip stock.

A blue-chip stock with moderate upside potential

At the recent trading price of $150.89 per share, CNR stock is valued at a price-to-earnings (P/E) ratio of about 20.5. This is a premium valuation, which is typical for the blue-chip dividend grower. The stock offers a dividend yield of just over 2.2%, which is relatively modest but still attractive for income-focused investors.

Analysts believe the stock is trading at a 15% discount and expect it to have a 12-month upside of about 18%. For long-term investors, CNR could deliver solid returns, especially if its results rebound from recent disruptions. Given the company's track record of steady growth and its essential role in the economy, shares could return around 12% annually over the next three to five years, barring any major economic downturns.