Friday, March 18, 2011

Canadian Pacific Railway 2

I bought this stock (TSX-CP) in October 2006. I had wanted some more railway stock and I thought that Canadian National Railway (TSX-CN) was too pricey. I have made a total return on this stock of 5.8%. If I had bought some more CNR, I would have had a total return of 13% in this same time period. It was probably not my best decision to buy CP. I had owned CP previously between 1987 and 1999 and my total return on the stock in this period was 5.4%.

The dividend growth has been ok over the past 5 years at 12% per year. I do not have a growth figure for 10 years, as this stock was a spin off from Canadian Pacific Limited in 2001. However, 8 year growth of dividends is a respectable 9.3%. Total return on this stock has been around 17% and 13% per year over the past 5 and 10 years. About 2% of this total return is due to dividends.

Where growth has not been good is for revenues, earnings, cash flow and book value. The earnings growth has probably been the best, where the 5 and 10 year growth figures are 2.6% and 9.7% per year, respectively. Because we are coming out a recession a lot of companies do not have good growth over the past 5 years, but you would hope that the 10 year growth is decent.

Revenue growth per share over the past 5 and 10 years is 1.5% and 2.5% per year, respectively. No matter how you look at cash flow growth, it is negative. It is negative for 5 and 10 year periods and for cash flow excluding changes in working capital. For book value, there is no growth over the past 5 years and the growth for the 10 year period is just 2.6% per year. I also dealt with changes in account for book value in my post of yesterday.

The Return on Equity has been good for this stock. The ROE for the financial year ending in December 2010 was 11.8%. The 5 year average ROE is 12.8%. However, the Accrual Ratios is a bit high at 5.7%. The problem is that the Net Income is higher than the Cash Flow from Operations. What you want to see is the Cash Flow from Operations higher than the Net Income.

The last thing to talk about is debt ratios. The Liquidity Ratio is 0.93. Part of the reason is the inclusion of the current portion of long term debt. Without this inclusion, the Liquidity Ratio is still a bit low at 1.19. The company has a history of low Liquidity Ratios. The Leverage Ratio is 2.83 and the Debt/Equity Ratio at 1.83 are both fine.

On Monday, I will talk about what my spreadsheet says about the current price and what the analysts say about this stock.

This company is a transcontinental railway operating in Canada and the U.S. Its rail network serves the principal centers of Canada, from Montreal to Vancouver and the U.S. Northeast and Midwest regions. Alliances with other carriers extend its market reach throughout the U.S. and into Mexico. Canadian Pacific Solutions provides logistics and supply chain expertise. Its web site is here CPR. See my spreadsheet at cp.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.

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