Canadian National Railway

This time of the year is a very busy time. I got to review this stock for my investment club and in the nature of never letting any work go to waste, I am publishing this review today in place of a blog item on my Investment, Economics Mostly blog which I usually do every Thursday.

Sound bite for Twitter and StockTwits is: Price is reasonable to expensive. I worry a bit about the P/B Ratio being so high at 4.77. The problem is that the stock price is rising faster than the Book Value. See my spreadsheet on 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.

I am doing a second review of this stock because of my investment club. My review is of an industrial stock, which this stock is classified as. My last report was in February 2016 and you can see that report here.

I have done well with this stock. My total return is 17.14% per year with 15.25% from capital gains and 1.89% from dividends. Dividends received to date have covered some 40% of my stock purchase. For the share I bought in 2005 I am earning a yield of 8.32% on my original purchase price. My shares are up 408%. I have had these shares for 11 years.

Dividends are low on this stock with the current dividend yield at 1.64% and the historical median at 1.47% and the 5 year median at 1.61%. The current dividend yield is based on dividends of $1.50 and a stock price of $91.64. The dividend growth is good at 18% and 17% growth per year over the past 5 and 10 years.

The Dividend Payout Ratio for EPS is good as it is below the 50% to 60% range which is the range below which you want for the payout for a non-utility stock. The DPR for 2015 was 28% and for the last 5 year is at 36%. The DPR for CPFS is 18% for 2015 and 24% for the last 5 years. The DPR for 2016 for EPS is expected to be around 33% and for CFPS is expected to be around 21.5%.

Some of the estimates for 2016, 2017 and 2018 have changed. Revenue and Earnings have gone down, but CFPS has gone up. Changes are not large. For example Revenue estimate for 2016 has declined by 6.5% (old estimate was $13,069M and new estimate is $12,218M). So instead of a Revenue increase of 3.6%, what we have is a revenue decline of 3.1%. The third quarter of 2016 shows Revenue declining from 2015 by 5%.

EPS estimate for 2016 has declined by 2.2% (old estimate $4.61 and new estimate $4.51). The EPS for the third quarter is up 3.2%.

The 5 year low, median and high median Price/Earnings per Share Ratios are 14.67, 17.28 and 19.90. The corresponding 10 year ratios are 12.00, 13.55 and 14.91. The corresponding historical ratios are 11.80, 13.62 and 14.99. So it would appear that the stock price has been going up partly due to a rise in P/E Ratio. When I look at this stock in February the current price was $76.24. Today the price is $91.64 which is an increase of 20.2%.

The current P/E Ratio is 20.32 based on a stock price of $91.64 and 2016 EPS estimate of $4.51. If you compare today's price with the EPS estimate for 2017 of $4.94, the P/E Ratio is 18.55. If your comparison is with the last 5 years, then the current P/E is a relatively high and the stock is relatively expensive.

I get a Graham Price of $44.14. The 10 year low, median and high Price/Graham Price Ratios are 1.15, 1.29 and 1.43. The current P/GP Ratio is 2.08 based on a stock price of $91.64. I get a Graham Price of $46.20 for 2017 and that P/GP Ratio is 1.98. This stock price testing suggests that the stock price is relatively expensive.

I get a 10 year median Price/Book Value per Share Ratio of 2.82. The current P/B Ratio is 4.77 a value some 69% higher. This P/B Ratio is based on BVPS of $19.20 and a stock price of $91.64. This stock price testing suggests that the stock price is relatively expensive.

The current dividend yield is 1.64% based on a stock price of $91.64 and dividends of $1.50. Dividends have gone up a lot lately with the dividend increase for 2015 being at 25% and the increase for 2016 at 20%. The historical dividend yield is 1.47% and this is some 11% lower than the current dividend yield. This suggests that the stock price is reasonable and below the median.

The last stock I wrote about was about was First Capital Realty (TSX-FCR, OTC-FCRGF)... learn more . The next stock I will write about will be Stella-Jones Inc. (TSX-SJ, OTC- STLJF)... learn more on Friday, December 16, 2016 around 5 pm.

When I look at analysts' recommendations, I find Strong Buy, Buy, Hold and Sell. Almost all are a Hold and the consensus recommendation would be a Hold. The 12 month stock price $84.85. This implies a total loss of 5.77% based on a stock price of $91.64 with a capital loss of 7.41% and dividends of 1.64%.

In a recent note Joey Frenette of Motley says how much he likes this stock and believes that it will do even better under a Trump presidency. Brent Sawyer on Sports Perspectives talks about recent purchases of this stock by funds. See what analysts are saying about this company on Stock Chase. Analysts mostly like this 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 Canadian National 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.