As we approach 2025, Canadian National Railway (TSX:CNR) presents a solid investment opportunity on the dip, particularly for conservative investors. Let's take a closer look!

The backbone of North American Trade

Canadian National Railway is more than just a stock — it's the backbone of North American trade, linking three vital coasts: the Atlantic, the Pacific, and the Gulf of Mexico. Its extensive railway network stretches across Canada and into the heart of Mid-America, making it a critical player in transporting a wide array of goods — from automotive products and coal to agricultural commodities and chemicals.

The railway's importance becomes especially evident during economic fluctuations. While many companies falter during recessions, CNR has shown resilience. For instance, during the COVID-19 pandemic, its adjusted earnings per share dipped by only 8%, and during the 2009 global financial crisis, the decline was a mere 13%. This ability to weather economic storms speaks volumes about its operational strength and the vital role it plays in the economy.

CNR's financial health is equally impressive, boasting an A-grade balance sheet. This strong foundation positions it as a solid blue-chip stock, ideal for long-term investors seeking stability and growth.

Steady growth and reliable dividends

When evaluating an investment, growth metrics are crucial. Over the past decade, CNR has demonstrated a compound annual growth rate (CAGR) that has demonstrated steady growth on a per-share basis across various key financial metrics. Its revenue rose by 7.4% while operating income has surged by 8.1%. More impressively, diluted earnings per share have increased by 10.7%, and dividends have skyrocketed by 13.9%, suggesting getting a boost from share repurchases.

Such growth is promising, but it's important to consider how this affects the company's dividend sustainability. As CNR matures, its payout ratio has risen, now estimated at 46% of adjusted earnings for the current year. This indicates a commitment to returning value to shareholders while still maintaining a sustainable dividend model. With last year's revenue reaching $16.8 billion and operating income exceeding $7 billion, CNR's financial performance highlights its capacity to deliver consistent returns.

Additionally, CNR stock's current dividend yield of nearly 2.2% is attractive, sitting at the higher end of its 10-year historical range. For investors, this yield acts as a nice complement to anticipated stock price gains, creating a more balanced approach to total returns.

Valuation and future prospects

Trading around $154 per share at writing, CNR's valuation is reasonable. With a price-to-earnings (P/E) ratio of approximately 21, the stock is positioned for potential growth in the coming years. Analysts project earnings growth of 8-10% annually, suggesting that the stock might be trading at a slight discount of over 13%, with about 15% upside potential within the next year.

To adopt a conservative outlook, if we project an 8% annual growth rate for earnings per share over the next five years and assume a target P/E of 19.5, CNR could deliver total returns of around 9.6%. This would be a solid return for conservative investors with long-term capital to invest.

The Foolish investor takeaway

Canadian National Railway's robust business model, consistent growth metrics, and decent dividend yield make it a good candidate for most diversified portfolios heading into 2025. While individual circumstances vary, CNR's resilience and growth potential suggest that holding or even buying may be wise for long-term investors, especially those who are risk-averse. Whether you're seeking capital preservation or steady wealth growth, CNR appears to have the foundation for success in the coming years.