Is it a good company at a reasonable price? It is really only the Dividend Yield tests that show a good current price. The last dividend increase was higher than the median over the past 5 years. This shows a positive attitude of management for the future. Analysts are not as positive about the future. This is certainly a good company, but now may not be the time to buy.
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 have had it for just over 16 years now and have made a total return of 16.32% per year with 14.36% from capital gains and 1.96% from dividends.
When I was updating my spreadsheet, I noticed this company has been a public company for 25 years and for the past 25 years, it has raised its dividend each year. I have done very well with this stock, earning a total return of 16.32% per year over the past 16 years with 14.36% from capital gains and 1.96% from dividends
If you had invested in this company in December 1996, $1,001.27 you would have bought 223 shares at $4.49 per share. In December 2021, after 24 years you would have received $4,439.37 in dividends. The stock would be worth $34,649.74. Your total return would have been $39,089.11.
If you had invested in this company in December 2010, $1,028.43 you would have bought 31 shares at $33.18 per share. In December 2021, after 10 years you would have received $508.09 in dividends. The stock would be worth $4,816.78. Your total return would have been $5,324.87.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $4.49 | $1,001.27 | 223 | 24 | $4,439.37 | $34,649.74 | $39,089.11 |
| $33.18 | $1,028.43 | 31 | 10 | $508.09 | $4,816.78 | $5,324.87 |
The dividend yields are low with dividend growth moderate. The current dividend yield is low (under 2%) at 1.90%. The 5, 10 and historical dividend yields are also low at 1.74%, 1.71% and 1.61%. The dividends have increased at a moderate rate (8% to 14% ranges) at 10.40% per year over the past 5 years. The last dividend increase was for 19% and it was done in 2022.
I am currently earning a dividend yield on my original investment of 16.25%. Dividends have covered 96.45% of the cost of my stock. If the company increases the dividend at the same rate as they used per year over the past 5 years of 10.40%, then in 15 years’ time, the dividend yield on your original investment would be at 8.53%. Also, assuming the same dividend increases for the future, your initial cost would be covered 55.02% based on current stock cost of $151.59 CDN$. See charts below.
| Div Yd | Years | At IRR | Div Inc |
|---|---|---|---|
| 3.17% | 5 | 10.40% | 64.00% |
| 5.20% | 10 | 10.40% | 168.96% |
| 8.53% | 15 | 10.40% | 341.09% |
| Div Pd | Cost | Years | At IRR | Div Cov |
|---|---|---|---|---|
| $18.03 | $151.59 | 5 | 10.40% | 11.89% |
| $42.80 | $151.59 | 10 | 10.40% | 28.23% |
| $83.41 | $151.59 | 15 | 10.40% | 55.02% |
The Dividend Payout Ratios (DPR) are fine. The DPR for EPS for 2021 is 36% with 5 year coverage at 34%. The DPR for Cash Flow per Share for 2021 is 26% with 5 year coverage at 25%. The DPR for Free Cash Flow for 2021 60% with 5 year coverage at 55%.
Debt Ratios are fine. The Long Term Debt/Market Cap Ratio for 2021 is 0.11 and is good. The Liquidity Ratio for 2021 is 1.10. If you add in Cash Flow after dividends, it is 2.78 and therefore fine. The Debt Ratio is good at 1.88. Leverage and Debt/Equity Ratios for 2021 are fine at 2.13 and 1.13.
The Total Return per year is shown below for years of 5 to 25 to the end of 2021. 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. |
|---|---|---|---|---|---|
| 2016 | 5 | 10.40% | 13.28% | 11.45% | 1.83% |
| 2011 | 10 | 14.24% | 16.50% | 14.51% | 1.98% |
| 2006 | 15 | 14.45% | 14.69% | 12.94% | 1.75% |
| 2001 | 20 | 15.84% | 15.03% | 13.37% | 1.66% |
| 1996 | 25 | 15.53% | 17.13% | 15.23% | 1.90% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 16.94, 19.39 and 21.85. The corresponding 10 year ratios are 15.26, 17.96 and 20.11. The corresponding historical ratios are 12.19, 13.75 and 15.86. The current P/E Ratio is 21.71 based on a stock price of $154.38 and EPS estimate for 2022 of $7.11. The current ratio is above the 10 year median high ratio. This stock price testing suggests that the stock price is relatively expensive.
I get a Graham Price of $72.05. The 10 year low, median, and high median Price/Graham Price Ratios are 1.57, 1.84 and 2.06. The current P/GP Ratio is 2.14 based on a stock price of $154.38. The current ratio is above the 10 year median high ratio. 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 4.30. The current P/B Ratio is 4.76 based on a Book Value of $22,744M, Book Value per Share of $32.45 and a stock price of $154.38. The current ratio is 11% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
There are estimates for the Book Value for 2022 and that estimate is a Book Value per Share of $30.10. The current P/B Ratio is 5.13 based on a Book Value of $21,097M, Book Value per Share of $30.10 and a stock price of $154.38. 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.
I get a 10 year median Price/Cash Flow per Share Ratio of 12.66. The current P/CF Ratio is 15.29 based on Cash Flow per Share estimate for 2022 of $10.10, Cash Flow of $7,079M and a stock price of $154.38. The current ratio is 21% 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 1.61. The current dividend yield is 1.90% based on a stock price of $154.38 and dividends of $2.93. The current dividend yield is 18% 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 1.71. The current dividend yield is 1.90% based on a stock price of $154.38 and dividends of $2.93. The current dividend yield is 11% 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 5.47. The current P/S Ratio is 6.95 based on Revenue estimate for 2022 of $15,578M, Revenue per Share of $22.23 and a stock price of $154.38. The current ratio is 27% 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. It is really only the Dividend Yield tests that show a good current price. The P/B Ratio tests say the current price is above the median and the rest of the tests show the current stock price as expensive. However, the testing shows that the stock price is not that far into expensive territory.
I look at the total return over a number of years. For P/S Ratio and P/E Ratio, the lower the ratio the cheaper the stock. For yield, the higher the yield, the cheaper the stock. In the chart below you can see that good returns were made with lower P/E Ratios and lower P/S Ratios. However, the yield was lower.
In the following chart the capital gains for the 10 years to December 31, 2021 is 14.51% per year. The beginning yield was at 1.62%, and the P/E Ratio and the P/S Ratio were at 14.82 and 3.92. Does this chart change my opinion of the stock price? No, it does not because P/S Ratios and P/E Ratios are currently relatively high. However, both the P/E Ratios and P/S Ratios have been getting higher over time. But we have been in a bull market since 2008.
| # Years | Cap Gains | Beg P/E | Beg P/S | Beg Yield |
|---|---|---|---|---|
| 5 | 11.45% | 19.35 | 5.72 | 1.66% |
| 10 | 14.51% | 14.82 | 3.92 | 1.62% |
| 15 | 12.94% | 12.81 | 3.33 | 1.30% |
| 20 | 13.37% | 14.49 | 2.58 | 1.03% |
| 25 | 15.23% | 8.75 | 1.16 | 1.48% |
| current | 21.71 | 6.95 | 1.90% |
When I look at analysts’ recommendations, I find Strong Buy (5), Buy (3), Hold (20) and Underperform (2). The consensus is a Hold. The 12 month stock price consensus is $166.95. This implies a total return of 10.04% with 8.14% from capital gains and 1.90% from dividends.
When I looked at analysts’ recommendations last year, I found Strong Buy (2), Buy (5), Hold (21), Underperform (1), and Sell (1). The consensus would be a Hold, but as you can see the recommendations are all over the place. The 12 month stock price consensus is $143.31. This implies a total return of 7.64% with 5.83% from capital gains and 1.82% from dividends based on a stock price of $135.42. What happen is a current price of $154.83, which means the stock return is 15.82% with 14.00% from capital gains and 1.82% from dividends.
I said that the stock price was on the expensive side but it is not far into the expensive territory. Currently, the stock seems to be again into expensive territory, but not that far into it.
A number of analysts’ on Stock Chase say you should buy on weakness. Joey Frenette on Motley Fool thinks that CNR is a great buy at present. Karen Thomas on Motley Fool says CNR is one of the best dividend stocks. The company talks about their fourth quarterly results on Newswire. A report from Simply Wall Street on Yahoo Finance says that the intrinsic value of this stock is $159.59 which is close to the current stock price.
Canadian National's 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 Absolute Software Corporation (TSX-ABST, NASDAQ-ABST) ... learn more. The next stock I will write about will be Canadian Pacific Railway (TSX-CP, NYSE-CP) ... learn more on Wednesday, February 9, 2021 around 5 pm. Tomorrow on my other blog I will write about Banks and Ratios 2.... learn more on Tuesday, February 8, 2022 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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