Canadian National Railways recent drop in price has increased its position in our portfolio and the stock is now a strong buy. The railway (TSX: CNR, NYSE: CNI) is arguably the top railroad operator in North America with an almost impossible to replicate 20,000 miles of rail track stretching from North to South and East to West across the continent. The business is well-diversified, transporting a broad range of goods which mitigates the risk of a cyclical decline in any particular sector.

The company ticks all the boxes on our Dividend Champion checklist including a sound balance sheet, abundant free cash flow, excellent dividend payment track record, large dividend cover and good growth prospects. The company is our number one rated Dividend Champion stock in terms of quality.

We included the stock at a fairly low weighting of 2.5% in the initial Dividend Champion portfolio issued in early May 2015 with the intention to increase the holding in the case of price weakness. The current price of $60.94 reflects a decline of 19% from the February peak and a 2015 dividend yield of 1.7%. In addition, the company recently declared a dividend of CAD0.3125 for which investors will qualify until it goes ex dividend on 5 June.

The most recent results again reflected the strength of the franchise with an increase in profits of 30% compared to the same quarter a year ago. The CEO mentioned that the business was on track to increase profits by more than 10% in the current year and the dividend was increased by 25% compared to the same quarter one year ago. Investors should also note that the dividend payout ratio is less than 30% and that the company intends to gradually increase the dividend payout ratio over time. Reuter consensus estimates indicate that the dividend could grow by 20% per year until 2018.

For dividend investors, the dividend yield on the stock may seem to be relatively low but to my mind compares well with the yields available on cash or government bonds, especially when the attractive dividend growth profile is taken into account.

The Dividend Champion portfolio increased its weight in Canada National Rail this morning from 2.5% to 4.0% with a trading price of CAD74.50/USD61.00.

Happy investing

Deon Vernooy