Is it a good company at a reasonable price? This company has done well for its shareholders over time. The current stock price could be relatively reasonable. It could also be relatively expensive. With the flat dividends, the management seems to feel that they will make little progress over the short term. Also, I do not buy stock when the dividend goes below 1%.
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 they split their stock on a 1 to 5 basis. Their debt increased by 116%. They also issued stock to buy Kansas City Southern railway (KCS).
If the company increases the dividend at the same rate as they used per year over the past 5 years to 2021 of 17.45%, then in 15 years’ time, the dividend yield on your original investment would be at 9.20%.
| Div Yd | Years | At IRR | Div Inc |
|---|---|---|---|
| 1.84% | 5 | 17.45% | 123.53% |
| 4.12% | 10 | 17.45% | 399.65% |
| 9.20% | 15 | 17.45% | 1016.87% |
However, If the company increases the dividend at the same rate as they used per year over the past 5 years to 2022 of 12.33%, then in 15 years’ time, the dividend yield on your original investment would be at 4.71%. So you can see the effect of the lack of dividend increases since 2020.
| Div Yd | Years | At IRR | Div Inc |
|---|---|---|---|
| 1.47% | 5 | 12.33% | 78.85% |
| 2.63% | 10 | 12.33% | 219.86% |
| 4.71% | 15 | 12.33% | 472.05% |
If you had invested in this company in December 1996, $1,002.19 you would have bought 278 shares at $3.61 per share. In December 2021, after 24 years you would have received $1749.04 in dividends. The stock would be worth $25,292.44. Your total return would have been $27,041.48.
If you had invested in this company in December 2010, $1,009.48 you would have bought 78 shares at $12.94 per share. In December 2021, after 10 years you would have received $360.20 in dividends. The stock would be worth $7,096.44. Your total return would have been $7,456.64.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $3.61 | $1,002.19 | 278 | 24 | $1,749.04 | $25,292.44 | $27,041.48 |
| $12.94 | $1,009.48 | 78 | 10 | $360.20 | $7,096.44 | $7,456.64 |
The dividend yields are low with dividend growth good. The current dividend yield is low (under 2%) at 0.82. The 5, 10 and historical median dividend yields are also low at 0.97%, 0.97 and 1.26%. The dividend growth is good (15% or higher) at 17.45% per year for the past 5 years. The last dividend increase was in 2020 and it was for 14.5%. There were no increases in 2021.
The Dividend Payout Ratios (DPR) are good. The DPR for EPS for 2021 is 18% with 5 year coverage at 17%. The DPR for Cash Flow per Share for 2021 is 19%, with 5 year coverage at 15%. The DPR for Free Cash Flow for 2021 is 24% with 5 year coverage at 31%.
Debt Ratios are fine. The Long Term Debt/Market Cap Ratio for 2021 is 0.22 and is good. The Liquidity Ratio is 0.43, but if you add in cash flow after dividends it is 1.37. This is still low but better. The Debt Ratio is 1.98. The Leverage and Debt/Equity Ratios are 2021 are fine at 2.02 and 1.02.
The Total Return per year is shown below for years of 5 to 33 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 | 17.45% | 24.67% | 23.47% | 1.20% |
| 2011 | 10 | 12.79% | 22.05% | 20.75% | 1.29% |
| 2006 | 15 | 11.42% | 15.33% | 14.28% | 1.05% |
| 2001 | 20 | 11.47% | 15.38% | 14.25% | 1.14% |
| 1996 | 25 | 11.68% | 14.92% | 13.78% | 1.14% |
| 1991 | 30 | 8.65% | 15.28% | 14.03% | 1.25% |
| 1988 | 33 | 7.59% | 13.42% | 12.20% | 1.22% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 14.71, 18.54 and 21.21. The corresponding 10 year ratios are 17.21, 20.82 and 24.17. The corresponding historical ratios are 11.54, 15.21 and 15.82. The current P/E Ratio is 24.47 based on a stock price of $92.27 and EPS estimate for 2022 of $3.77. The current ratio is above the 10 year median high ratio. This stock price testing suggests that the stock price is relatively expensive. However, the stock price is not much into expensive territory.
I get a Graham Price of $55.56. 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 1.66 based on a stock price of $92.27. This ratio is below the low of the 10 year median low ratio. This stock price testing suggests that the stock price is relatively cheap.
I get a 10 year median Price/Book Value per Share Ratio of 5.44. The current P/B Ratio is 2.54 based on a book value of 33,389M, Book Value per Share $36.39 and a stock price of $92.27. The current P/B Ratio is 53% below the 10 year ratio. This stock price testing suggests that the stock price is relatively cheap.
There is also an estimate for Book Value per Share for 2022 and it is $35.50. The P/B ratios would then be 2.60 based on a stock price of $97.27, Book Value of $33,004M and Book Value per Share of $35.50. The ratio for 2022 is 2.60. This is 52% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap. The thing with Book Value, is that it is based on what occurred in the past. This is different than P/CF Ratio or P/E Ratio where it is based on what the company is expected to do in the future.
I get a 10 year median Price/Cash Flow per Share Ratio of 13.09. The current Cash Flow Ratio is 21.16 based on Cash Flow per Share estimate for 2022 of $4.36, Cash Flow of $4,053 and a stock price of $97.32. The current ratio is 62% 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 1.26%. The current dividend yield is 0.82% based on dividends of $0.76 and a stock price of $97.32. The current ratio is 35% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get an historical median dividend yield of 0.97%. The current dividend yield is 0.82% based on dividends of $0.76 and a stock price of $97.32. The current ratio 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 4.86. The current P/S Ratio is 9.86 based on Revenue estimate for 2022 of $8,704M, Revenue per Share of $9.36 and a stock price of $97.32. The current ratio is 102% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
It does not look like their new acquisition is expected to have any effect on earnings for 2022. In 2023, the Revenue estimate is $13,849M. The P/S Ratio for 2023 is expected to be 6.19, based on Revenue estimate for 2023 of $13,849, Revenue per Share is $14.90 and a stock price of $97.32. The 2023 ratio is 27% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive. Even though the stock is still expensive, this is a better result.
Results of stock price testing is that the stock price is could be reasonable, but there are some problems in testing. First the tests seem either to say the stock price is cheap or it is expensive. Problems are big increase in shares (almost 40%) for the purchase of Kansas City Southern railway. The other problem is the flat dividends since late 2020 to the present.
When I look at analysts’ recommendations, I find Strong Buy (11), Buy (6), Hold (9) and Underperform (1). The consensus would be a Buy. The 12 month stock price consensus is $104.28. This implies a total return of 13.84%, with 13.02% from capital gains and 0.82% from dividends based on a stock price of $92.27.
When I looked at analysts’ recommendations last year, I found Strong Buy (10), Buy (9), Hold (10) and Underperform (1). The consensus was a Buy. The 12 month stock price consensus was $94.13 ($470.65 pre-split). This implies a total return of 4.40% with 0.84% from dividends and 3.56% from capital gains. What happened was a loss of 1.14% with a capital loss of 1.98% and dividends of 0.84%. Last year I thought that the stock price was relatively expensive.
Some prefer CP and some prefer CNR on Stock Chase. Amy Legate-Wolfe on Motley Fool recommends this over CP because of its recent acquisition. Adam Othman Motley Fool thinks this is a growth oriented Giant. A Zacks Equity Research report on Yahoo Finance talks about the fourth quarter for CP. There is a company notice on CPR site about them buying Kansas City Southern railway.
Canadian Pacific is a CAD 7.7 billion railroad operating on 12,500 miles of track across most of Canada and into parts of the Midwestern and Northeastern United States. Its web site is here Canadian Pacific Railway.
The last stock I wrote about was about was Canadian National Railway (TSX-CNR, NYSE-CNI) ... learn more. The next stock I will write about will be AGF Management Ltd (TSX-AGF.B, OTC-AGFMF) ... learn more on Friday, February 11, 2022 around 5 pm. Tomorrow on my other blog I will write about Great Rally of 2021.... learn more on Thursday, February 10, 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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