Friday, October 21, 2016

Canadian Pacific Railway

Sound bite for Twitter and StockTwits is: Probably expensive. I think that this stock is a bit expensive. Stocks can remain overpriced for some time just like sectors can. There was a huge sell-off of shares last year toping some $774M. However, this could all be Ackman who sold off his shares last year and ceased being a director. See my spreadsheet on Canadian Pacific Railway.

I do not own this stock of Canadian Pacific Railway (TSX-CP, NYSE-CP), but I used to. It is a stock I held from 1987 to 1999. I also held it 2006 to 2011. I decided in 2011 to have only one railway stock and chose CN as my railway stock. I am following this stock because it is a dividend growth stock. It is one that was on Mike Higgs' list.

Dividends on this stock are low and the increases are moderate. The current dividend is just 1.03% and it has an historical median dividend of 1.50%. The dividend on this stock has often been below 1% lately. The dividend increases over the past 5 and 10 years was at 6.2% and 9.2%. The last dividend increase was in 2016 and was for 42.9%. However, this was after two years of flat dividends.

The Dividend Payout Ratio was 16.7% in 2016 and the 5 year median DPR is 28%. The DPR for CFPS was 9% in 2015 and the 5 year median was 12.3%. It would seem to me that it can afford it dividends. Earnings are a bit volatile with growth over the past 5 and 10 years at 16.95 and 9.5% per year. However, if you look at 5 year running averages over the past 5 and 10 years, growth is at 4.3% and 7.2% per year. This is because there was a sharp increase in earnings in 2014.

Dividend growth was not bad in the past. If you held this stock for 5, 10 or 15 years, your current dividend yield on your original purchase if at a median price would be 3%, 3.2% and 6.1%. Going into the future, if the 6% increase holds and you purchased this stock today at $193.39 then you could be earning in 5, 10 or 15 years 1.4%, 1.95 or 2.5% dividend yield.

If you increase the dividend growth to 11.9% to take into account the most recent growth then in 5, 10 or 15 years you might be earning on your current purchase price 1.8%, 3.18 or 5.6% dividend yield. If you use the 10 year growth, which is quite possible to go back to, in 5, 10 or 15 years' time you could be earnings on current purchase price 1.6%, 2.5% or 3.6%. Problem with low yields and moderate growth is that it takes a long time to get high yields.

The outstanding shares have been declining. Over the past 5 and 10 years shares have declined by 2% and 0.3%. Therefore you should look at things like Revenue rather than Revenue per Share. Revenue has grown over the past 5 and 10 years by 6.1% and 4.5%. Revenue per Share has grown by 8.3% and 5.2% per year over the past 5 and 10 years.

The 5 year low, median and high median Price/Earnings per Share Ratios are 20.13, 24.52 and 28.92. The 10 year corresponding values are a lot lower at 13.45, 16.23 and 19.69. The historical values are closer but lower than the 10 year ones at 11.29, 13.64 and 15.98. The current P/E Ratio is 16.39 based on a stock price of $193.39 and 2016 EPS estimate of 11.80. Since the 12 month EPS to the end of the third quarter is $10.10, this estimate seems reasonable. If we use the 10 year values then this testing would suggest that the stock price is relatively reasonable and around the median.

I get at Graham price of $90.01. The 10 year low, median and high median Price/Graham Price Ratios are 1.02, 1.22 and 1.43. The current P/GP Ratio is 2.15 based on a stock price of $193.39. This stock price testing suggests that the stock price is relatively expensive.

I get a 10 year Price/Book Value per Share Ratio of 2.10. The current P/B ratio is 6.34 based on BVPS of $30.52 and a stock price of $193.39. The current P/B Ratio is some 202% above the 10 year median. This stock price testing suggests that the stock price is relatively expensive.

The historical median Dividend Yield (which covers 14 years) is 1.50%. The current dividend yield is 1.03% based on a stock price of $193.39 and a dividend of $2.00. The current dividend yield is some 31% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.

Note that the 5 year median dividend yield is 1.03% which is today's. There are many analysts that feel that the whole stock market is priced rather high. Dividend yields started to trend lower in 2012 for this stock. Part of this was higher stock prices but the other factor was a flat dividend.

The 10 year median P/S Ratio is 2.24. The current P/S Ratio is 4.59 based on 2016 Revenue of $6484M and Revenue per Share of $42.16. The current P/S Ratio is some 104% higher than the 10 year median value. This stock price testing suggests that the stock price is relatively expensive.

When I look at analysts' recommendations, I find Strong Buy, Buy, Hold and Underperform recommendations. Most of the recommendations are a Buy and the consensus is a Buy. The 12 month stock price is $213.23. This implies a total return of 11.29% with 10.26% from capital gains and 1.03% from dividends with a current stock price of $193.39.

There is a recent article by Kristine Owram in the Financial Post about Ackman's investment in CP. According to Giuseppe Valiante of The Canadian Press in an article on CTV News, CP is directly responsible for damages caused by the derailment in 2013 in Lac-Megantic. Ryan Vanzo of Motley Fool asks if this stock has peaked and answers that he thinks not. However, he does like CNR better. See what analysts think at Stock Chase.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see that report here and here.

The last stock I wrote about was about was Kombat Copper Inc. (TSX-KBT, OTC-PNTZF)... learn more. The next stock I will write about will be Medtronic Inc. (NYSE-MDT)... learn more on Monday, October 24, 2016 around 5 pm.

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 Canadian Pacific Railway.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.

No comments:

Post a Comment