This company’s broad geographic presence in North America, including the Atlantic, Pacific and Gulf of Mexico coasts, gives it a competitive advantage. Earnings have risen 31.1% since 2014 as the company focuses on efficiency at the same time it invests in new locomotives and tracks.

The addition of new operations and a strong balance sheet are also paying off as the dividend jumps for the 24^th straight year.

CANADIAN NATIONAL RAILWAY CO. $113 (Toronto symbol CNR; www.cn.ca) operates Canada’s largest railway. Its 32,200-kilometre network stretches across the country and reaches the U.S. Midwest and Gulf Coast.

Ottawa nationalized the company in 1922, as railways were critical to Canada’s early economic growth. More than 70 years later, in 1995, CN became a publicly traded company.

Commodities, such as grain, forest products, coal and fertilizers, accounted for 64% of CN’s 2018 revenue. They were followed by intermodal (containers that travel by rail, ship and truck), 24%; cars and auto parts, 6%; and other products, 6%.

The company’s broad geographic presence also cuts its risk: 17% of its revenue came from Canadian domestic traffic; 16% from U.S. domestic traffic; 33% from cross-border shipments; and 34% from overseas traffic.

CN is also the only major railway in North America that serves three coasts: the Atlantic, Pacific, and Gulf of Mexico. That gives it a big advantage, as its customers need only deal with one railway instead of transferring their goods among smaller carriers, spread across regions.

CN’s shares have jumped 75% in the past five years, mainly due to the company’s strong focus on efficiency and heavy spending on new locomotives and tracks. Those investments have helped the company handle rising freight volumes of grain, fertilizer and forest products. The lack of new pipeline capacity has also forced oil producers to ship more of their crude by rail.

Overall revenue rose 3.9%, from $12.1 billion in 2014 to $12.6 billion in 2015. However, revenue fell 4.6% to $12.0 billion in 2016 as producers of crude oil and coal cut their shipments due to lower prices for those commodities.

Revenue rebounded by 8.3%, to $13.0 billion in 2017. That gain was mainly due to higher volumes of crude oil, fracking sand, grain and coal. CN’s revenue rose 9.8% to $14.3 billion in 2018. In addition to higher volumes of crude oil, coal, grain and intermodal containers, it increased its freight rates and fuel surcharges.

The company’s earnings before unusual items jumped 31.1%, from $3.1 billion in 2014 to $4.1 billion in 2018. CN is an aggressive buyer of its own shares, and the company’s earnings per share rose 46.3%, from $3.76 to $5.50.

We feel CN is in a strong position to keep expanding its earnings. As well, since the company operates in all three signatories to the new U.S.-Mexico-Canada free trade agreement, that pact helps to cut its risk.

Dividend Stocks: 24 years of rising dividends

A big part of CN’s success is its ongoing investments in new locomotives and other equipment, and its upgrades to tracks and terminals. The company’s capital expenditures jumped 32.1%, from $2.7 billion in 2017 to $3.6 billion in 2018. CN expects to spend a further $3.9 billion in 2019.

Despite the extra spending, the company’s operating ratio in 2018 worsened to 61.5% from 59.8% in 2017. (Operating ratio is calculated by dividing regular operating costs by revenue. The lower the ratio, the better.) That’s because CN hired more employees to handle rising rail volumes. Higher fuel costs also hurt its operating ratio.

Even so, the company’s new investments will continue to pay off. The Alberta government is easing its recent cuts to crude oil production in the province. At the start of 2019, producers (as a group) had to lower their daily output by 325,000 barrels, or 8.7%. That has helped boost Canadian oil prices, so the government has now eased the output cut to 250,000 barrels a day for February and March.

CN also recently started hauling crude oil for Cenovus Energy (Toronto symbol CVE) under a three-year contract. Thanks partly to that deal, it shipped 232,000 barrels a day in the fourth quarter of 2018. That’s a jump of 79.8% from 129,000 barrels in the third quarter.

The company has also recently agreed to buy The Trans-X Group of Companies. Based in Winnipeg, the privately held firm provides trucking and logistics services to businesses in both Canada and the U.S. CN has yet to reveal how much it will pay for TransX, but it expects to complete the purchase in the next few months. The acquisition will make it easier for shippers to transport their goods by both rail and trucks.

In addition, CN has now offered to acquire a large container terminal at the port of Halifax, Nova Scotia. It plans to expand the terminal’s capacity so it can handle two large vessels as well as trains.

The company feels the Halifax terminal could become as successful as its facility in Prince Rupert, B.C., which is the closest North American port to Asia. As manufacturers shift production from China to southeast Asia, they will likely ship more of their goods westward through the Suez Canal to North America. That could benefit Halifax.

The company’s strong balance sheet will support these investments. As of December 31, 2018, its long-term debt was $11.4 billion, or just 14% of its market cap. It also held cash of $266 million.

CN expects its earnings will rise at least 10% to $6.05 a share in 2019. The stock trades at 18.0 times that estimate. That’s a high multiple for a cyclical railway, but still acceptable in light of the company’s high market share.

Starting with the March 2019 payment, the company will raise its quarterly dividend by 18.1%, to $0.5375 a share from $0.455. The new annual rate of $2.15 yields 1.9%. CN also plans to buy back about 3% of its outstanding shares by January 31, 2020.

The company expects its earnings will rise about 10% in 2019 to $6.05 share. The stock trades at 18.7 times that estimate.

Recommendation in The Successful Investor: Canadian National Railway is a buy.