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 a lot of green for EPS and Cash Flow, but blue for Revenue. Revenue is a lot lower in growth than either EPS or Cash Flow. Take Revenue for the past 5 years which has grown at just 2.81% per year and Revenue per Share which has grown at 5.68% per year per year. (Number of shares outstanding is decreasing so Revenue per Share is higher than Revenue growth.
If you look at EPS for the last 5 years, EPS has growth at 16.43% per year. Cash Flow has grown at 7.97% per year and Cash Flow per Share has grown at 10.99% per year. The same problems are seen also for growth over the past 10 years. This cannot go on, either they will have to grow their Revenue or EPS and Cash Flow will stop growing. I colour code growth and other values so that problems will be easily seen. I use purple for growth under 3%, blue when growth is 3% to 7%, and green when growth is 8% and over.
The dividend yields are low with dividend growth good. The dividend yields are low (under 2%). The current dividend yield is 0.84%. The 5, 10 and historical dividend yields are 0.97%, 0.99% and 1.53%. Dividend growth is good (15% and above) at 19.70% per year for the past 5 years. The last increase was in 2020 and it was for 14.5%.
The Dividend Payout Ratios (DPR) are good. The DPR for EPS for 2020 is 19% with 5 year coverage at 17%. The DPR for Cash Flow per Share for 2020 is 14% with 5 year coverage at 13%. The DPR for Free Cash Flow for 2020 is 41% with 5 year coverage at 33%. Also, the sites I looked at seem to agree on FCF.
Debt Ratios are fine if not quite what I like to see but they have not changed their range for a long time. The Long Term Debt/Market Cap is 0.15. The Liquidity Ratio for 2020 is 0.50. If you add in Cash Flow after dividends it rises to 1.38. I prefer to see this at 1.50 or higher. If you add back the Long Term due this year, the ratio is 2.50. The Debt Ratio for 2020 is 1.45. This is also a bit low as I would like it to be 1.50 or higher. Leverage and Debt/Equity Ratios for 2020 are 3.23 and 2.23. I would prefer these to be below 3.00 and below 2.00.
The Total Return per year is shown below for years of 5 to 32 to the end of 2020. 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. |
|---|---|---|---|---|---|
| 2015 | 5 | 19.70% | 72.43% | 69.35% | 3.08% |
| 2010 | 10 | 12.76% | 22.38% | 21.17% | 1.21% |
| 2005 | 15 | 12.57% | 16.93% | 15.83% | 1.10% |
| 2000 | 20 | 12.00% | 17.47% | 16.18% | 1.30% |
| 1995 | 25 | 12.53% | 16.64% | 15.35% | 1.29% |
| 1990 | 30 | 6.94% | 14.75% | 13.60% | 1.15% |
| 1988 | 32 | 7.50% | 13.69% | 12.50% | 1.19% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 14.10, 16.78 and 19.46. The corresponding 10 year ratios are 15.29, 19.09 and 22.89. The corresponding historical ratios are 11.11, 14.58 and 15.65. The current P/E Ratio 22.39 based on a stock price of $454.47 and EPS estimate for 2020 of $20.30. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a Graham Price of $158.36. The 10 year low, median, and high median Price/Graham Price Ratios are 1.69, 2.03 and 2.39. The current P/GP Ratio is 2.87 based on a stock price of $454.47. 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 5.44. The current P/B Ratio is 8.28 based on a Book Value of $7,319M, Book Value per Share of $54.91, and a stock price of $454.47. The current P/B Ratio is 52% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Cash Flow per Share Ratio of 13.09. The current ratio is 17.15 based on Cash Flow per Share estimate for 2021 of $26.50, Cash Flow of $3,532M and a stock price of $454.47. The current ratio is 31% above the 10 year ratio. This stock price testing suggests that the stock price is relatively expensive.
I get an historical median dividend yield of 1.53%. The current dividend yield is 0.84% based on dividends of $3.80 and a stock price of $454.47. The current dividend yield is 45% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median dividend yield of 0.99%. The current dividend yield is 0.84% based on dividends of $3.80 and a stock price of $454.47. The current dividend yield is 15% below the historical median dividend yield. 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 4.62. The current P/S Ratio is 7.25 based on Revenue estimate for 2021 of $4,358M, Revenue per Share of $62.70 and a stock price of $445.47. The current ratio is 57% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
Results of stock price testing is that the stock price is probably expensive. The two dividend yield tests show this stock is expensive and above the median. The P/S Ratio test shows this stock as expensive. Also, some of the ratios are really high. This applies to the P/B Ratio where the 10 year ratio is really high at 5.44, let alone the current one. The P/GP Ratios are also very high.
Is it a good company at a reasonable price? I think that the company is currently expensive. However, it is a good company that has provided good results for shareholder and this is true especially lately. It is a dividend growth company, which is what I like. However, the current yield is under 1.00% and I do not buy companies with dividends below 1% no matter how good the growth.
When I look at analysts’ recommendations, I find Strong Buy (10), Buy (9), Hold (10) and Underperform (1). The consensus would be a Buy. The 12 month stock price consensus is $470.65. This implies a total return of 4.40% with 0.84% from dividends and 3.56% from capital gains. There is a disconnect between the recommendations and the 12 month stock price. It is a problem that analysts suggest buys of stocks after they have a run up in price.
Analysts on Stock Chase say this stock is a buy. They give it 4 stars out of 5. Amy Legate-Wolfe on Motley Fool thinks this is a great investment for growing wealth in your TFSA. The Executive Summary on Simply Wall Street give this stock 3 stars out of 5 and list 2 risks. A writer on Simply Wall Street says the revenue for this company is likely to be higher than the wider industry. Sven Carlin on YouTube gives analysis of different railway stocks in North America.
Canadian Pacific is a $7.3 billion CDN$ railroad operating on 12,500 miles of track across most of Canada and into parts of 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 National Railway.
The last stock I wrote about was about was Absolute Software Corporation (TSX-ABT, OTC-ALSWF) ... learn more. The next stock I will write about will Canadian National Railway (TSX-CNR, NYSE-CNI) ... learn more on Wednesday, February 10, 2021 around 5 pm. Tomorrow on my other blog I will write about Banks and Ratios 3.... learn more on Tuesday, February 09, 2021 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.
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