One of the qualities investors expect in a blue chip stock is its ability to deal effectively with setbacks.

This long-established Canadian stock is tackling problems based partly on bad weather and higher costs, partly on shortcomings in its own equipment. In the face of these difficulties, the company displayed confidence by raising its dividend.

CANADIAN NATIONAL RAILWAY CO. (Toronto symbol CNR; www.cn.ca) operates Canada’s largest railway. Its 32,200-kilometre network stretches across the country. It also travels down through the U.S. Midwest, connecting Canada to the Gulf of Mexico.

Partly due to bad winter weather, CN has had trouble delivering grain from Western Canada to ports in B.C. Rising demand for freight service has also delayed shipments of other commodities such as coal, crude oil and the sand used in oil and gas drilling.

In response, CN announced that it has earmarked $250 million in 2018 to expand its railyards and other operations in Western Canada. In all, the company plans to spend a record $3.2 billion this year on new tracks, locomotives and other upgrades. That’s up 18.4% from $2.7 billion in 2017. To put those amounts in context, CN earned $3.8 billion, or $4.99 a share, in 2017.

The current problems have also prompted the company to remove its CEO Luc Jobin. He has been replaced by Jean-Jacques Ruest. The new CEO has promised to build double tracks and siding extensions in western Canada to improve efficiency in the face of the current backlog.

CN’s revenue in the three months ended December 31, 2017, rose 2.1%, to $3.29 billion from $3.22 billion a year earlier. The gain is mainly the result of higher international container traffic out of British Columbia. Industries contributing to the company’s growth in the quarter include coal, metals and automotive parts. Earnings in the quarter dropped 5.8%, to $897 million from $952 million.

Earnings per share declined 2.4%, to $1.20 from $1.23, on fewer shares outstanding.

Blue Chip Stocks: CN should benefit from recent U.S. tax rate cut

The company’s lower profit is mainly due to higher fuel and other operating costs. CN has also hired more employees to handle rising rail volumes. As a result, its operating ratio in the quarter worsened to 60.4% from 56.6% a year earlier. (Operating ratio is calculated by dividing regular operating costs by revenue. The lower the ratio, the better.)

The company’s operating ratio in the quarter worsened to 60.4% from 56.6% a year earlier. (Operating ratio is calculated by dividing regular operating costs by revenue. The lower the ratio, the better.)

With the March 2018 payment, the company raised its quarterly dividend by 10.3%, to $0.455 a share from $0.4125. The new annual rate of $1.82 yields 1.9%. The company’s dividend has grown an average of 16.2% annually over the last 5 years.

CN’s U.S. operations should benefit from that country’s recent corporate tax rate cut. The company expects to earn between $5.25 and $5.40 a share in 2018. The stock trades at a reasonable 17.6 times the midpoint of that forecast.

Recommendation in TSI Dividend Advisor: CN Rail is still a buy.

For our views on how to make the right decisions with blue chip stocks, read The top blue chip stocks all share these common characteristics.

For our recent report on a leading Canadian blue chip stock, read Another dividend increase for Canada’s largest bank.