I do not own this stock of Canadian Pacific Railway (TSX-CP, NYSE-CP). I am following this stock because it is a dividend growth stock. It is one that was on Mike Higgs' list. It is a stock I held from 1987 to 1999 so I am following it. I also held it 2006 to 2011. I decided in 2011 to have only one railway stock and chose CN as my railway stock.
When I was updating my spreadsheet, I noticed estimates have gone up. Last year the estimates for 2019 and 2010 were $7,776M and $8,329M for Revenue and the current estimates for 2019 and are $7,858 and $8,337. Last year the estimate for EPS for were $15.90 and $18.00 and the current estimates for these years are $17.70 and $18.60. The last dividend increase was for 27.7% for 2019.
The dividend yield for this stock is low (under 2%). The current dividend yield is 1.16%. The 5, 10 and historical median dividend yields are 0.95%, 1.02% and 1.40%. Dividend increases are in the moderate range (8% to 14% ranges). See the chart below. Currently, for this stock the yields on original investment after 5, 10, 15, 20, and 25 years would be 1.49%, 6.55%, 8.35%, 18.30%, and 26.91%
The Dividend Payout Ratios are good. The DPR for EPS for 2018 was 18% with 5 year coverage at 16%. The 10 year median DPR for EPS is 22%. The DPR for CFPS for 2018 was 13% with 5 year coverage at 12%. The 10 year median DPR for CFPS is 13%.
Debt Ratios are fine. The Long Term Debt/Market Cap Ratio for 2018 was 0.24. The Liquidity Ratio for 2018 was 057% with a 5 year median of 0.75. If you add in cash flow after dividends, the ratio is 1.78% with 5 year median of 2.12. The Debt Ratio for 2018 was 1.45 with 5 year median also at 1.45. The Leverage and Debt/Equity Ratios for 2018 was 3.20 and 2.20 respectively. The 5 year medians were at 3.00 and 2.00 respectively. These are a little high, but not abnormally high for this sort of company.
The Total Return per year is shown below for years of 5 to 24 to the end of 2018. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2013 | 5 | 11.61% | 52.86% | 50.19% | 2.67% |
| 2008 | 10 | 9.37% | 21.09% | 19.44% | 1.64% |
| 2003 | 15 | 10.95% | 14.76% | 13.44% | 1.32% |
| 1998 | 20 | 10.24% | 16.50% | 15.17% | 1.33% |
| 1994 | 24 | 14.98% | 14.00% | 0.98% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 15.87, 18.54 and 21.21. The corresponding 10 year ratios are 14.98, 17.90 and 20.94. The corresponding historical ratios are 11.54, 13.79 and 16.67. The current P/E Ratio is 16.17 based on a stock price of $186.14 and 2019 EPS estimate of $17.70. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a Graham Price of $143.28. The 10 year low, median, and high median Price/Graham Price Ratios are 1.58, 2.00 and 2.37. The current P/E Ratio is 2.00 based on a stock price of $286.14. This stock price testing suggests that the stock price is relatively reasonable and at the median.
I get a 10 year median Price/Book Value per Share Ratio of 4.05. The current P/B Ratio is 5.35 based on Book Value of $7,157M, $51.55 and a stock price of $186.14. The current P/B Ratio is 37% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get an historical median dividend yield of 1.40%. The current dividend yield is 1.16% based on dividends of $2.12 and a stock price of $186.14. The current dividend is 17% below the historical median. This stock price testing suggests that the stock price is relatively reasonable but above the median.
The 10 year median Price/Sales (Revenue) Ratio is 4.26. The current P/S Ratio is 5.06 based on 2019 Revenue estimate of $7,858, Revenue per Share of $56.60 and a stock price of $186.14. The current ratio is 19% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
Results of stock price testing is that the stock price is certainly not cheap and it could be a bit pricey. Both the Dividend Yield test and the P/S Ratio testing show that the stock price is above the median. The P/B Ratio testing show that it is expensive. This is because the Book Value’s growth has been weak. Part of the reason is the change in accounting rules in 2010. Also, the Net Income is increasing at a higher rate than the Comprehensive Income. Still the P/S Ratio testing show the stock price close to be expensive also.
Is it a good company at a reasonable price? This is certainly a good dividend growth stock. Personally, I would like to see a higher yield. They have room to move the dividend higher and there was a big increase this year at 27.7%. However, DPR is still low for 219 at 17%.
When I look at analysts’ recommendations, I find Strong Buy (9), Buy (8) Hold (11) and Sell (1). The consensus would be a Buy. The 12 month stock price consensus is $329.22. This implies a total return of 16.22% with 15.06% from capital gains and 1.16% from dividends.
See what analysts are saying on Stock Chase. They like it but one analyst thinks it might be running out of gas. Kay Ng on Motley Fool thinks that CP has better value than CN. A writer on Simply Wall Street says the ROE for this company is higher than average in the transportation industry. A writer on Simply Wall Street says that the stock price is close to the stock’s intrinsic value. Marion Hillson on The Enterprise Leader talks about National Bank Financial decreasing this stocks target price recently..
Canadian Pacific is a CAD 7.3 billion railroad operating on 12,500 miles of track across most of Canada and in the Midwestern and Northeastern United States; it is the second-smallest Class I railroad by revenue and route miles. Its web site is here Canadian Pacific Railway.
The last stock I wrote about was about was Trigon Metals Inc (TSX-TM, OTC-PNTZF) ... learn more. The next stock I will write about will be Medtronic PLC (NYSE-MDT) ... learn more on Tuesday, October 15, 2019 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.
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