Friday, March 11, 2011

Canadian National Railway

This is a company (TSX-CNR) that I have owned since July 2005. I also bought some more stock in January 2009. I have made a return of 15.6% per year on this stock. Most of this return is in capital gain, as only around 2% would be from dividends. I have stocks with difference dividend rates and different growth rates.

Often those with low dividends have higher dividend growth rates. The growth rate on dividends for this company is good. I have had this company for 6 years and I am making a return on my original investment of 3.4%. The current dividend rate is just 1.8%. This company has just raised their dividends by 20%. The dividend growth potential of this stock over the next 5 and 10 years is 3.9% and 8.3%, respectively. This calculation is assuming using the current dividend growth of 16.5% and you buy at the current stock price of $72.22.

Some of the best growth rates for this stock are the earnings and total return. The earnings over the past 5 and 10 years have grown at the rate of 10% and 11% per year, respectively. The total return has grown over the past 5 and 10 years at the rate of 9% and 18% per year, respectively.

The growth in cash flow over the last 10 years is good, but only so so, for the last 5 years. The Cash Flow growth for the last 5 and 10 year is 5.3% per year and 9% per year, respectively. The cash flow excluding working capital for the last 5 and 10 years is 3.3% and 9%. This second type of cash flow is not as good as the first, but many analysts feel that cash flow excluding working capital is the cash flow to follow.

Book Value growth is ok, but not great. The book value growth for the last 5 and 10 years is 7.3% and 7.8% per year, respectively. When you look at Return on Equity, this company has a very good one. The ROE for the financial year ending in December 2010 is 18.7% and the 5 year average is 18.9%.

The first debt ratio I looked at is the Liquidity Ratio and it is low at 0.83. This means that the current assets cannot cover the current debt. However, the reason it is low is that a current portion of the long term debt is included but there seems to be facilities to handle this debt. Without the current portion of the long term debt, the Liquidity ratio is 1.16. Still low, but at least the current assets can cover the current liabilities.

The next debt ratio is the Asset/Liability Ratio. This is much better at 1.80. The next ratio to look at is the Leverage Ratio and the Debt/Equity Ratio. The Leverage ratio is 2.44 and the Debt/Equity Ratio is 1.44. Neither of these ratios is particularly low, but they are not particularly high. When comparing debt ratios, you need to compare them within an industry.

On Monday, I will look to see what the analysts are saying about this stock and what my spreadsheet says about the current stock price.

Also, I have notice that the stock market has been going down lately. Do not forget that the market goes down, not because of problems; but when investors decide to worry about problems. Not only are investors emotional, they also act like a mob.

Canadian National Railway Company and its operating railway subsidiaries, spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and Mobile, Ala., and the key metropolitan areas of Toronto, Buffalo, Chicago, Detroit, Duluth, Minn./Superior, Wis., Green Bay, Wis., Minneapolis/St. Paul, Memphis, St. Louis, and Jackson, Miss., with connections to all points in North America. Its web site is here CNR. See my spreadsheet at cnr.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.


  1. Good review! I never really got interested in this one because the stock is so expensive and the dividend so little... I guess this one is to be invested for the long term. Gorpon Pope recently wrote about Railway. Just like you, he said it's good for the long run. May be a good investment, but the dividend is too low. Despite investing for long term, I feel that a company that do not pay 5% and up do not belong to my portfolio. But your wiser, you know better :)

  2. Good review Susan, agreed with Sunny!

    Can I assume you've held this stock unregistered all this time? (Instead of RRSP or of late, TFSA?)

    Like Monopoly, I think I need to own a railroad at some point :)

    CNR is too pricy for me to buy right now. I'd buy around $50 or even $55 maybe.

    Stay in touch!