Friday, February 10, 2017

Canadian National Railway

Sound bite for Twitter and StockTwits is: Dividend Growth Stock. The stock price seems to be reasonable to expensive. See my spreadsheet on Canadian National Railway.

I own this stock of Canadian National Railway (TSX-CNR, NYSE-CNI). You should buy this stock for diversification purposes. You would expect this stock to be more volatile than a utility, but provide long term gains and increasing dividends.

Dividends are low and growth is good. The current dividend is 1.81% based on Dividends of $1.65 and a stock price of $91.17. The 5 year median dividend yield is 1.61% and the historical median is 1.52%. The dividends have grown at 18.2% and 16.35 per year over the past 5 and 10 years.

The Dividend Payout Ratios are good. The DPR for EPS for 2016 is 32% and the DPR for CFPS for 2016 is 18%. The corresponding 5 year DPR for EPS is 28% and the 5 year DPR for CFPS is 18.5%.

I have done well with this stock. For the Stock I bought 12 years ago in 2005, I am earning 9.15% on my original investment. For the stock I bought 8 years ago in 2009, I am making 7.4% on my original investment. If I look at how much of the cost of my shares have been covered by dividends as of the end of January it is some 42%.

The Liquidity Ratio is rather low at 0.70. That means that the current assets cannot cover the current liability. However, if you add in cash flow after dividends, this ratio is 2.05. If you add in the current portion of the long term debt, which has been handled, the ratio is 1.39. Now add back in the cash flow after dividends and the ratio becomes 4.06. There is a vulnerability at the low initial ratio, but I cannot image on this stock the cash flow going so low that they cannot cover the rest of the current liabilities.

The Debt Ratio is 1.67 and this is good. This ratio has a 5 year median of 1.70. The Leverage and Debt/Equity Ratios are 2.50 and 1.50 respectively. The 5 year median ratios are 2.39 and 1.39. These are not low, but are acceptable.

The outstanding shares have been decreasing at almost 3% per year over the past 5 and 10 years. That means if you want to get the real growth for this company, you need to look at Revenue, Earnings and Cash Flow and not the per share values. For example, the Revenue for the past 5 and 10 years has grown at 5.9% and 4.6% per year. The Revenue per Share has grown at 9.1% and 7.7% per year.

The real growth rate is the one for Revenue for the past 5 and 10 years at 5.9% and 4.6% per year. There is nothing wrong with increasing or decreasing shares per se. However, you should be aware of where to look for the real growth of a company.

The 5 year low, median and high median Price/Earnings per Share Ratios are 14.78, 17.28 and 19.90. The corresponding 10 year values are 12.19, 13.62 and 15.18. The corresponding historical ratios are 11.83, 13.62 and 15.18. It would seem like the recent stock run up includes P/E Ratios increasing. The current P/E Ratio is 18.49 based on a stock price of $91.17 and 2017 EPS estimate of $4.93. This stock price testing suggests that the stock price is relatively on the high side, but perhaps still relatively reasonable.

I get a Graham Price of $46.48. The 10 year low, median and high median Price/Graham Price Ratios are 1.24, 1.37 and 1.51. The current P/GP Ratio is 1.96 based on a stock price of $91.17. 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 3.13. The current P/B Ratio is 4.68, a value some 50% higher. The current P/B Ratio is based on a stock price of $91.17 and BVPS of $19.48. This stock price testing suggests that the stock price is relatively expensive.

I get an historical dividend yield of 1.52%. The current dividend yield is 1.81% based on dividends of $1.65 and a stock price of $91.17. The current dividend yield is some 19% higher than historical one. At first glance it would see that this testing is showing that the stock price is relatively reasonable and below the median and getting relatively cheap. The stock price is considered cheap when the current dividend is 20% above the historical one.

However, I have only data on dividends for 18 years and with rising dividends there is a rising Dividend Payout Ratios for both EPS and CFPS. For the nearest competitor of Canadian Pacific Railway (TSX-CP, NYSE-CP), the DPR is declining for both EPS and CFPS, but the 5 year payouts are the same. The historical dividend yield is similar at 1.50%, but the current DPRs are much lower at 1.03% based on $2.00 of dividend and a stock price of $193.39.

When I look at analysts' consensus I find Strong Buy, Buy, Hold and Sell recommendations. There is not Underperform recommendation and the vast majority of the recommendations are a Hold. The consensus would be a Hold. The 12 month stock price is $88.01. This implies a total loss of 1.66% with capital loss of 3.47% and dividends of $1.81.

Staff at Canadian Manufacturing talks about this company $2.5B in capital investments in 2017. Kristine Owram on Financial Post says this company's CEO is not worried about his business being in the crosshairs of Trump's Protectionist measures. James Sands does a nice analysis of this company on Seeking Alpha. Jared Gershman of Motley Fool likes this company. See what analysts' are saying about this stock on Stock Chase. They mostly like it.

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.

The last stock I wrote about was about was Exco Technologies Ltd. (TSX-XTC, OTC-EXCOF)... learn more . The next stock I will write about will be Absolute Software Corporation (TSX-ABT, OTC-ALSWF)... learn more on Monday, February 13, 2017 around 5 pm.

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.

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