Canadian National Railway is one of the top railway companies in North America, and a backbone of the North American economy. It spans Canada from coast to coast, and its tracks run through the U.S. to the Gulf of Mexico. Last year, when it set a record in freight shipped, CN Rail revenues rose 15% to $9.7 billion, and it forecast an even stronger 2015.

And CN Rail has an outstanding long-term record. For the past 10 years, the company’s earnings per share rose by 14% per year, and the dividend per share rose 18% per year. Over the same period, its average return on equity jumped 22.7% per year.

There are two questions investors should ask: Can CN Rail keep up its breakneck pace? And is it worth buying at its current price?

The answer to both questions is yes.

The highlights:

In the first quarter, its adjusted earnings per share came in at 86 cents—30% ahead of the comparable quarter last year, while the dividend was also increased by 25%. The strong performance was helped by a weaker first quarter of 2014, due to the weather, and the weaker Canadian dollar, which added 7 cents per share for the quarter.

Revenue increased by 15%, driven by the weaker Canadian dollar, a 9% increase in car loadings and higher prices. Good results were achieved in petroleum and chemicals, grain and fertilizers, forest products, automotive, metals and minerals. The only section that struggled was coal, where revenues dropped 13% on the back of lower shipped volumes.

The all-important operating ratio (operating expenses divided by revenue, a measure of management efficiency) also improved considerably for a new, first-quarter record of 65.7%. Key drivers included a sharp fall in fuel costs, which declined by 23% during the quarter, and improvements in key measures such as revenue per ton mile, revenue per carload and fuel efficiency.

Cash flow remains extraordinarily strong, with operating cash flow leaping by 54% and free cash flow (that is, operating cash flow minus capital expenditures) increasing by 6% to $521 million for the quarter.

Apart from the increased dividend, the company also continued to buy shares back from the market. It said 28 million shares (3.5% of the current shares in issue) may be repurchased between October 2014 and October 2015. Since 2000, around $14 billion has been spent on share buybacks, reducing the number of shares in issue by a whopping 30%.

The CN Rail management expects earnings per share to increase by “double digits” in 2015, with carloads expected to grow by 3% and price increases ahead of inflation. The company sees further growth in energy-related commodities, lumber and panels, and lower fuel costs.

It is diversified geographically and economically. The $250 billion worth of goods transported annually by the company represents a wide range of sectors, from resources to manufactured goods to consumer goods. In the first quarter of 2015, no commodity accounted for more than 21% of total revenues.

Linked to the Economy

Longer term, the growth of CN Rail will be linked to growth in the North American economy, as well as industrial production and exports of certain commodities.

And if history holds true, the company will grow considerably faster than the economy and its main competitors. This is due to its well-positioned railway network and its position as the low-cost industry leader. The graph below shows the considerable gap between CN Rail’s cost effectiveness and that of its main rivals.

The company is also changing its focus from being a great, efficient railroad to being “a true supply-chain enabler.” One example: the March announcement of a plan to build a $250 million intermodal and logistics hub. Such a hub transports freight in containers that can be moved among rail, ships and trucks.

What are the risks?

For the current year, the sharp decline in coal volumes reported in the first-quarter, as well as Canadian grain volumes that are expected to be lower after record crops in 2014, will depress second- and third-quarter results.

Some analysts also fear that the lower oil price will hurt the fast-growing business of oil and fracking sands transported by rail. However, there was no sign of a decline in volumes in the first quarter, with the combined crude oil and fracking sand volumes growing by 21% compared with the previous year. Although CN Rail management lowered the full-year forecast for energy carloads, further growth of 18% is expected for the year.

It’s unlikely that the oil volumes are going to fall away, although oil companies have cut back on their expansion plans for 2015. Facilities that have been developed during the high-oil-price years are coming on stream and will be kept in production as long as the oil price remains above the cash operating cost, which is considerably lower than the current spot price of crude oil.

The railroad had a poor year in terms of accidents in 2014, and it allocated another $80 million for safety.

A Top Dividend Champion

We select our Dividend Champions based on a number of criteria focused on the ability of a company to maintain and grow its dividend payments. CN Rail scores well in key aspects: a 19-year record of dividend payments growing at 17% per year; a rock-solid balance sheet providing protection should times get tough; a low dividend payout ratio with only 26% of profit currently distributed to shareholders; reasonable prospects to grow profits; and dividends ahead of inflation.

Despite the 16% decline in the share price over the past few months, the stock is not valued cheaply. On the normal valuation metrics, including the forward price-to-earnings ratio and enterprise value to EBITDA, the stock is somewhat more expensive than the prime Tier 1 North American railroad operators but cheaper than its main Canadian rival, Canadian Pacific Railways.

CN Rail’s current 2015 dividend yield is 1.7%, and the estimated dividend growth for the next few years is 20% per year. CN Rail is a business with an excellent track record of profitable growth and an irreplaceable asset base.

Investors should consider taking advantage of the recent price decline to Buy CN Rail below $60 and become more aggressive should the price drop below $56.