Friday, February 14, 2014

Canadian National Railway 2

Canadian National Railway 2

On my other blog I am today writing about our medical establishment's attitude to patient's time continue...

I own this stock of Canadian National Railway (TSX-CNR, NYSE-CNI). In 2005 I was look for good companies to buy at a reasonable price. This stock met by criteria. This is a dividend growth company with a good record of dividend increases. I brought some more in 2009. In my RRSP account, I bought this stock in 2011 and sold in 2013. Reason for sale was to raise money in my RRSP account for future withdrawals. I was looking for something to sell with a low dividend yield.

The insider trading report shows some $18.4M of insider selling with net insider selling at 15.7M and insider buying at $2.7M. In January of this year, the company was buying back shares for cancellation. The company has done a lot of this recently.

Not only do insiders have options, but they have other option like vehicles called Deferred Share Units, Performance Share Units, Restricted Share Units and Directors Restricted Share Units. In 2013, 1.4M shares were added to the outstanding shares due to stock options. The book value of these shares was $40M. These shares added 0.2% to the outstanding shares.

There is some insider ownership with the CEO owning shares worth around $7.8M, a director owning shares worth around $14.4M and the chairman owning shares worth around $12.3M.

The 5 year low, median and high median Price/Earnings per Share Ratios are 12.13, 13.62 and 14.99. The current P/E Ratio is 17.28 based on a share price of $60.66 and 2014 earnings estimates of $3.51. This stock price test suggests that the stock is relatively expensive.

I get a Graham Price of $32.73. The 10 year low, median and high median Price/Graham Price Ratios are 1.05, 1.22 and 1.37. The current P/GP Ratio is 1.85 based on a stock price of $60.66. This stock price tests suggests that the stock is relatively expensive.

I get a 10 year Price/Book Value per Share Ratio of 2.51. The current P/B Ratio is 4.47 based on a stock price of $60.66 and a BVPS of $13.56. The current ratio is 78% higher than the 10 year median ratio and this stock test suggests that the stock is relatively expensive.

I get a 5 year median dividend yield of 1.78% and the current dividend yield is 1.65%. The current year is some 7% lower than the 5 year median dividend yield. Although you would like the current dividend yield to be higher than the 5 year median dividend yield, they are not that far apart and this stock test suggests that the stock price is relatively reasonable.

The historical high dividend yield is 2.05% and the historical average dividend yield is 1.56%. The current dividend yield is 5.5% above the historical average dividend yield and this test suggests that the stock price is relatively reasonable. There is a number of ways to calculate the historical average or median dividend yield, but in all cases the current dividend yield is higher. Again this suggests that the current stock price is relatively reasonable.

It is interesting that the stock tests that do not use any estimates, which are the P/B Ratio test and the dividend yield test, show very converging results. The thing is that the BVPS values have not been growing as quickly as the dividends. Dividends have grown at 13.3% per year over the past 5 years and BVPS has only grown at 6.99%. The dividend yield has grown fast than EPS, which has grown at 9.4% per year over the past 5 years.

The dividends have grown at the expensive of the Dividend Payout Ratio, although, DPRs are still rather good at 28% for earnings and 19% for cash flow. This would suggest some caution as the stock price maybe on the side expensive side.

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold recommendations. The consensus recommendations would be a Buy recommendation. The 12 month consensus stock price is $58.5. This implies a loss of the next 12 months of 1.91% with 1.65% from dividends and a capital loss of 3.56%.

This Financial Post article talks about CNR raising its rates for companies using old tank cars. There is a positive report on this company from the Motley Fool. A rather negative report on the under reporting of accidents by CNR is on the Word Press site. This is a blog called Railroaded on Word Press with all sort of negative news on this company. There is a great analysis by The Passive Income Earner on merits of buying CNR stock compared to CP stock.

Although I still like this stock and will continue to hold what I have, I do think that the stock is rather fully valued and now may not be the best time to buy. See my spreadsheet at cnr.htm.

This is the second of two parts. The first part was posted on Thursday, February 13, 2014 and is available here.

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.

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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