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.
When I was updating my spreadsheet, I noticed that I have done very well with this stock. For my trading account I have a total return of 16.57% per year with 14.60% from capital gains and 1.97% from dividends. The dividends that I have received have covered 71.6% of the cost of my stock. This is after 14.6 years. It may be a low dividend yield stock, but on my original purchase in 2005, I am making 12.8% on my original investment.
The dividend yield on this stock is low (under 2%). The current dividend is 1.81% with 5, 10 and historical yields at 1.74%, 1.75% and 1.58%. Dividend growth until 2020 has been good (15% and above). In 2020 they dividend the lowest dividends increase ever at just 7%. They tend to do one dividend increase each year at the beginning of the year. A low dividend yield and high dividend growth is a good stock for people starting out.
The Dividend Payout Ratios are fine, but maybe high for this company. The DPR for EPS for 2019 is 37% with 5 year coverage at 30%. This is probably the highest DPR for EPS that this company has had. There is always a tension between needing money for investments and paying money out to shareholders. This is probably why the dividend increase for 2020 was low. The DPR for CFPS for 2019 is 25% with 5 year coverage at 22%. This is also in a high range for the company. The DPR for Free Cash Flow for 2019 is 75% with 5 year coverage at 51%.
Debt Ratios are fine. The Long Term Debt/Market Cap Ratio is low and good at just 0.14. The Liquidity Ratio is rather low at 0.66, but if you add in cash flow after dividends it is good at 1.68. The Debt Ratio is good at 1.70. The Leverage and Debt/Equity Ratios are fine at 2.43 and 1.43.
The Total Return per year is shown below for years of 5 to 23 to the end of 2019. 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. |
|---|---|---|---|---|---|
| 2014 | 5 | 16.54% | 9.75% | 7.98% | 1.77% |
| 2009 | 10 | 15.59% | 17.19% | 15.15% | 2.04% |
| 2004 | 15 | 17.35% | 14.88% | 13.12% | 1.77% |
| 1999 | 20 | 16.58% | 17.56% | 15.57% | 1.99% |
| 1996 | 23 | 16.30% | 17.15% | 15.25% | 1.90% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 15.51, 17.83 and 20.07. The corresponding 10 year ratios are 14.73, 17.25 and 19.78. The corresponding historical ratios are 12.13, 13.63 ad 15.37. The current P/E Ratio is 20.43 based on a stock price of $126.85 and 2020 EPS estimate of $6.21. This stock price testing suggests that the stock price is expensive.
I get a Graham Price of $59.49. The 10 year low, median, and high median Price/Graham Price Ratios are 1.50, 1.71 and 1.95. The current P/GP Ratio is 2.13 based on a stock price of $126.85. This stock price testing suggests that the stock price is expensive.
I get a 10 year median Price/Book Value per Share Ratio of 4.16. The current P/B Ratio is 5.01 based on a stock price of $126.85, Book Value of $18,041M, and Book Value per Share of $25.33. The current ratio is 20% above the 10 year ratio. This stock price testing suggests that the stock price is expensive.
I get an historical median dividend yield of 1.58%. The current dividend yield is 1.81% based on a stock price of $126.85 and dividends $2.04. The current dividend yield is 15% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median dividend yield of 1.75%. The current dividend yield is 1.81% based on a stock price of $126.85 and dividends $2.04. The current dividend yield is 3% above the 10 year median dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
The 10 year median Price/Sales (Revenue) Ratio is 4.97. The current P/S Ratio is 5.80 based on 2020 Revenue estimate of $15,589, Revenue per Share of $21.89 and a stock price of $126.85. The current ratio is 17% 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 probably reasonable to expensive. Most of the testing is showing the stock price on the expensive side. Although the ones I like of P/S Ratio testing and dividend yield testing is showing the price as reasonable, but one above the median and one below.
Is it a good company at a reasonable price? I think that this is a good dividend paying stock. It has a low yield, but good dividend growth. For the stock I bought in 2005, I have a yield of 12.8% on my original purchase price. The price may be on the high side.
If you look at capital gains and starting P/E you can see a pattern. In the following chart, over the past 5 years, the Capital Gain per year was 7.98% and 5 years ago the P/E was 20.78. This is only capital gain. The Total return for the past 5 years is 9.75% because of 2.88% from dividends. So, with the current P/E Ratio at 20.43, you might expect to get a total return above 8% which is, of course, a good total return. Starting P/E Ratio seems to count with this stock.
| Cap Gain Period | Cap Gain per year | Starting P/E |
|---|---|---|
| 5 years | 7.98% | 20.78 |
| 10 years | 15.15% | 14.63 |
| 15 years | 12.13% | 17.05 |
| 20 years | 15.57% | 10.43 |
When I look at analysts’ recommendations, I find Strong Buy (3), Buy (5), Hold (20), and Sell (2). Until recently, you hardly ever saw sell recommendations. The consensus recommendation is a Hold. The 12 months stock price is $126.76. This would imply a total return of 1.74%, with 1.81% from dividends and a capital loss of 0.07%. Obviously, our analysts do not expect much movement in the stock price this year. The company also seems to expect a slowdown because of the low increase in dividends for 2020.
Stock Chase. They like this company, but some say they prefer the cheaper CP. Aditya Raghunath on Motley Fool thinks it is a safe dividend stock but does not like the fact it has recently spent more time on reducing costs than growing.. A writer on Simply Wall Street thinks this stock is fairly value as the P/E Ratio is at its industry’s peers’ ratio. A Writer on Simply Wall Street says the dividend is adequately covered by EPS and CF . Christopher Reynolds on Global News talks about the end of the CNR strike.
Canadian National Railway spans Canada from coast to coast and extends through Chicago to the Gulf of Mexico. 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 Friday, February 7, 2020 around 5 pm. Tomorrow on my other blog I will write about Something to Buy February 2020.... learn more on February 06, 2020 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. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.
No comments:
Post a Comment