Thursday, February 13, 2014

Canadian National Railway

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.

My return on this stock to the end of January 2014 has been at 17.71% per year with 1.62% from dividends and 16.09% from capital gains. For the stock I bought in 2005, 8 years ago, I am making a yield of 5.34% on my original purchase money. The current dividend yield is 1.65%. The 5 year median dividend yield is 1.78%.

Dividends have increased by 13.3% and 17.8% per year over the past 5 and 10 years. At the 5 year rate of 13%, if you invested money today, you could be earning 5.6% in 10 years' time on that money. This is the reason you buy dividend growth stocks. Because of the low dividend yield, it would be a great stock to use to build a portfolio that would eventually provide you with income.

Why the 5 year dividend growth is lower than the 10 years dividend growth is because dividend increases were much lower from 2008 to 2010 inclusive. This is generally what happens in bear markets going into recessions.

The Dividend Payout Ratios are good with the 5 year median DPR for earnings at 25% and the 5 year median DPR for cash flow at 19%. The DPR for 2013 were similar at 28% and 19%, respectively.

The 5 and 10 year total return for this stock is 18.09% and 16.71% per year with 14.30% and 16.17% per year from capital gains and 1.92% and 1.69% per year from dividends.

The outstanding shares have decreased by 2.6% and 3% per year over the past 5 and 10 years. Shares have increased due to stock options and decreased due to buy backs. With decreasing outstanding shares it is important to look at other values than "per share" values. That is look at Revenue and Revenue per Share. Just looking at the "per share" values may not give you the whole picture on how well a company is doing.

With this company there has been moderate growth in revenue and good growth in earnings and cash flow. Revenue has growth at 4.5% and 6% per year over the past 5 and 10 years. Revenue per Share has growth at 7.3% and 9.4% per year over the past 5 and 10 years.

Net income has grown at 6.6% and 9.9% per year over the past 5 and 10 years with Earnings per Share growth at 9.4% and 13.5% per year over these same periods. Cash flow has grown at 6.9% and 8% per year over the past 5 and 10 years and Cash Flow per Share has grown at 11% and 10% per year.

For the last 10 years, the Return on Equity has been above 10%. I only have comprehensive income for the last 8 years and this has also been above 10% except for one year when it was 9.4%. The ROE for 2013 was at 20.2% with a 5 year median ROE at 20.2%. The ROE on comprehensive was very high in 2013 at 31%. The difference between net income and comprehensive income has varied a lot over the years.

The Liquidity Ratio is not where I would like it to be. The current one is 0.79. That means that current assets cannot cover current liabilities. However, if you add in cash flow after dividends, the ratio goes to 1.93. If you disregard the current portion of the long term loans, the ratio goes from 0.79 to 1.34, low but acceptable. The Debt Ratio at 1.75 is quite good.

The current Leverage and Debt/Equity Ratios are 2.33 and 1.33 respectively. The 5 year median Leverage and Debt/Equity Ratios are 2.40 and 1.40, respectively. These are rather normal for this sort of stock.

This has been a terrific investment for me. I will retain what I have but will not buy anymore because I have enough of this stock and I do not want any stock to dominate my portfolio.

In my dividend income portfolio, I like to have different sorts of dividend stocks with different payment styles. This stock has a rather low dividend with very good dividend increases. I also have stocks with modest dividend yields and modest dividend growth and ones with rather high dividends and low dividend growth.

Having stocks that have low dividend yield and good dividend growth can give a nice boost to your yearly dividend income growth. See my spreadsheet at cnr.htm.

This is the first of two parts. The second part will be posted on Friday, February 14, 2014 and will be 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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