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Why this dividend growth is perfect for your TFSA account

Dividends can be a great way to generate income. Over time, dividend payments can amount to a significant amount of capital, especially when companies are carefully selected for their ability to increase dividends. Companies with dividend growth are also ideal for TFSA accounts that are best suited for long-term investment strategies.

These criteria make Canadian National Railway (TSX: CNR) (NYSE: CNI) is one of the best TSX stocks for TSFA investors. As the largest railway company in Canada, CNR has the largest market share in an almost impregnable industry. CNR has been paying dividends every year since 1996 and, as a rule, increases dividend payments year after year.

Over the past four years, CNR has increased its dividend by 33%. The company currently has a dividend yield of 4.82% with a payout ratio of 23%, which should bode well for income-oriented investors and those seeking dividend-equity stocks to be included in their TFSA. Let's look at two more reasons why CNR is a good investment option.

CNR underestimated

There is good reason to believe that CNR is currently undervalued. The company's current P / E is 12.85, which is below the TSX average. CNR shares are also cheaper than its main competitor in Canada, Canadian Pacific Railway,

Buying company shares at a price below its intrinsic value is always a good idea.

CNR works like a well oiled machine.

CNR's recent earnings reports were encouraging. The company reported an increase in revenue, operating and net income, as well as earnings per share. CNR also makes profit more efficiently. Over the past five years, the company's return on equity increased by 13%, while its net profit margin increased by 16% over the same period.

While CNR has always been considered one of the most efficient railway companies, the company had some problems at the beginning of the year. Due to the increase in demand, the CNR network was overloaded, which led to the emergence of several unsatisfied customers and a drop in the price of its shares.

However, CNR promised to tackle this issue and increased spending on the capital budget to $ 3.2 billion, which was a record for the company. CNR also hired 400 train conductors in the first quarter alone.

CNR's efforts to get back on track were rewarded. The company's profit in the second quarter was excellent, and the value of its shares recovered after a decline in the first quarter. Although CNR has not escaped the recent highly volatile situation in the stock market, evidence that the company has responded to the crisis properly, as CNR did, is an encouraging sign for investors.

The essence

CNR has proven its ability to support both profit growth and dividend growth, while simultaneously preventing unexpected growth in demand and maintaining efficiency at an optimal level. The company is also currently undervalued, which means that now is the time to buy shares in the railway giant. TSFA investors should pay attention to this.

Fool Prosper Bakini does not have positions in the companies mentioned. David Gardner owns shares of the Canadian National Railway. Motley Fool owns shares of the Canadian National Railway. Canadian National Railway this is a recommendation Canada stock advisor.

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