Tuesday, February 12, 2013

Canadian National Railway

I own this stock of Canadian National Railway (TSX-CNR, NYSE-CNI). I originally bought this stock in 2005 and in 2009 for my trading account. To date, I have made 16.52% per year on this stock. For this stock of my total return some 1.63% is in dividends and 14.89% is in capital gains.

I had also had some of this stock in my RRSP account. However, I am changing the stocks in my RRSP account as I have too many with low dividends. With low dividends, it means that I need to keep a lot of cash in my RRSP account so that projected dividends and cash add up to 5 years in which I do not need to sell stocks to raise money for RRSP withdrawals. I will talk about this subject later.

Even though dividends are low (5 year median dividend yield is just 1.8%), the dividend increases have been good with growth at 12.3% and 18% per year. For the stock I bought in 2005, I am making a return of 4.16% in dividend yield on my original purchase. In 15 years, you could expect to make between 10% and 14% return on your original investment.

The dividends are low and so are the Dividend Payout Ratios. For the financial year of 2012, the DPRs were 24.5% for earnings and 21.5% for cash flow. These are close to the 5 year median values of 24% and 19%.

The total return on this stock over the past 5 and 10 years is at 16.01% and 17.49% per year. The portion attributed to dividends is 1.88% and 1.89% per year over these periods. The capital gain portion is 14.13% and 15.60% per year over these periods.

They have been quite business in buying back shares. The outstanding shares have decreased by 2.5% and 3.2% per year over the past 5 and 10 years. This is a high rate of buy backs. The shares have been increased on this same period of stock options. This high rate of stock buy backs can distort some of the values I look at. Buying back shares is not bad in itself, but you should be aware of the consequences.

Revenue has increased by 4.7% and 5% over the past 5 and 10 years. The Revenue per Share has increased much better at 7.3% and 8.4% per year. When a company buys back a lot of shares, this can cause the per share values to be better.

Earnings per Share have increased by 7.8% and 16.6% per year over the past 5 and 10 years. The Cash Flow per Share has grown at the rate of 6.4% and 8.3% per year over the past 5 and 10 years. Book Value per Share has grown at 4.2% and 6.2% per year over the past 5 and 10 years.

The Return on Equity is very good at 24.3% for the financial year ending in 2012. Their buy back policy could affect this number. (See my blog for further information on Return on Equity.) Also, the ROE on comprehensive income is lower at 20.5%. This is over 15% lower and I think a bit significant.

However, there is often a big difference between the ROE on Net Income and on Comprehensive Income. Although I expect the ROE to be good on this stock, it just may not be as good as it appears. This is just a warning. I note that the EPS/CFPS ratio is 0.88 and this is fine as it is below 1.00. (If this ratio was higher than 1.00, it would also be a warning.)

The Liquidity Ratio has always been low on this stock with the current Ratio being 0.85 and the 5 year median ratio being 0.93. If you include cash flow after dividends the Ratio raises to 1.95 a good value. Also, if you take off the current portion of the debt (which has been handled) you get a better Ratio of 1.15.

The Debt Ratio has always been much better and quite good at 1.70. The Leverage and Debt/Equity Ratios are fine at 2.42 and 1.42 for this type of company.

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 or StockTwits.

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