Is it a good company at a reasonable price? I do like both the railway companies. I think that they are good long term investment. However, at present this stock is rather expensive. However, this price probably prices in the Kansas City Southern acquisition. Analysts are divided on their recommendations. So, it is probably unclear what a reasonable price is. A problem I see is the very low dividend yield.
I do not own this stock of Canadian Pacific Railway (TSX-CP, NYSE-CP). 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 that shareholders have done very well with this stock. See chart below. Over the past 5 years, Total Return to the end of 2022 is very good at 27.38%, with 26.07% from capital gains and 1.31% from dividends.
If you had invested in this company in December 2012, for $1,009.00 you would have bought 50 shares at $20.18 per share. In December 2022, after 10 years you would have received $244.50 in dividends. The stock would be worth $5,047.50. Your total return would have been $5,292.00.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $20.18 | $1,009.00 | 50 | 10 | $244.50 | $5,047.50 | $5,292.00 |
If you had invested in this company in December 1997, for $1,009.00 you would have bought 50 shares at and adjusted cost of $3.85 per share. In December 2022, after 25 years you would have received $1,820.91 in dividends. The stock would be worth $26,247.00. Your total return would have been $28,067.91.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $3.85 | $1,001.00 | 260 | 25 | $1,820.91 | $26,247.00 | $28,067.91 |
The dividend yields are low with dividend growth moderate. The current dividend yield is low (below 2%) at just 0.72%. The 5, 10 and historical dividend yields are also low at 0.96% , 0.96% and 1.25%. The dividend growth is moderate (8% to 14% ranges) at 12% per year over the past 5 years. The last dividend increase was in 2022 and it was for 14.4%.
The Dividend Payout Ratios (DPR) are good. The DPR for 2022 for EPS is 20% with 5 year coverage at 18%. The DPR for 2022 for Adjusted Earnings per Share (AEPS) 21% with 5 year coverage at 19%. The DPR for 2022 for Cash Flow per Share (CFPS) is 17% with 5 year coverage at 15%. The DPR for 2022 for Free Cash Flow (using the company’s FCF) is 19% with 5 year coverage at 27%. (There are differences in FCF calculation for dividend entities.
Debt Ratios are fine. The Long Term Debt/Market Cap Ratio is low and good at 0.19. The Liquidity Ratio is low at 0.59 for 2022, but add in Cash Flow after dividends and it is fine at 1.66. The Debt Ratio is high and good at 2.12. The Leverage and Debt/Equity Ratios are low and good at 1.89 and 0.89.
The Total Return per year is shown below for years of 5 to 34 to the end of 2022. 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. |
|---|---|---|---|---|---|
| 2017 | 5 | 12.33% | 27.38% | 26.07% | 1.31% |
| 2012 | 10 | 11.32% | 18.56% | 17.47% | 1.10% |
| 2007 | 15 | 10.08% | 15.81% | 14.73% | 1.07% |
| 2002 | 20 | 10.56% | 16.15% | 14.94% | 1.22% |
| 1997 | 25 | 11.68% | 15.13% | 13.96% | 1.17% |
| 1992 | 30 | 11.14% | 16.96% | 15.40% | 1.56% |
| 1988 | 34 | 7.36% | 13.38% | 12.16% | 1.21% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 15.87, 19.64 and 23.76. The corresponding 10 year ratios are 17.21, 20.82 and 24.17. The corresponding historical ratios are 11.61, 15.77 and 15.98. The current P/E Ratio is 23.51 based on a stock price of $105.07 and EPS estimate for 2023 of $4.47. The current ratio is between the median and high ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I do have Adjusted Earnings per Share (AEPS) data. The 5-year low, median, and high median Price/Earnings per Share Ratios are 14.98, 20.00 and 25.02. The corresponding 10 year ratios are 15.60, 20.54 and 25.48. The current ratio is 23.45 based on a stock price of $105.07 and AEPS for 2023 of $4.48. The current ratio is between the median and high ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a Graham Price of $64.90 . The 10-year low, median, and high median Price/Graham Price Ratios are1.71, 2.04 and 2.35. The current P/GP Ratio is 1.62 based on a stock price of $105.07. The current ratio is below the low of the 10 year median ratios. 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 2.51 based on a stock price of $105.07, Book Value of $38,886M and Book Value per Share of $41.79. The current ratio is 54% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I have also a Book Value per Share estimate for 2023 of $44.90. This implies a P/B Ratio of 2.34 based on a stock price of $105.07 and Book Value of $41,780M. This ratio is 57% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I get a 10-year median Price/Cash Flow per Share Ratio of 13.58. The current P/CF Ratio 18.21 based on Cash Flow per Share estimate for 2023 of $5.77, Cash Flow of $5,369M and a stock price of $105.07. The current ratio is 34% 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 1.25%. The current dividend yield is 0.72% based on a stock price of $105.70 and dividends of $0.76. The current dividend yield is 42% below the historical dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median dividend yield of 0.96%. The current dividend yield is 0.72% based on a stock price of $105.70 and dividends of $0.76. The current dividend yield is 24% below the historical dividend yield. This stock price testing suggests that the stock price is relatively expensive.
The 10-year median Price/Sales (Revenue) Ratio is 5.35. The current P/S Ratio is 8.57 based on Revenue estimate for 2023 of $11,404M, Revenue per Share of $12.26 and a stock price of $105.07. The current ratio is 60% 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 dividend yield tests say this and it is confirmed by the P/S Ratio test. The other tests varied from cheap for the P/B Ratio test to reasonable and above the median for the P/E Ratio test.
When I look at analysts’ recommendations, I find Strong Buy (13), Buy (5), Hold (11) and Underperform (1). The consensus is a Buy, but the recommendations cover a very broad range. The 12 month stock price consensus is $115.12. This implies a total return of 10.29% with 9.57% from capital gains and 0.72% from dividends based on a stock price of $105.07
Analysts say on Stock Chase to buy on weakness. Stock Chase gives this stock 5 stars out of 5. It is not on the Money Sense list. Amy Legate-Wolfe on Motley Fool thinks that the Kansas City Southern acquisition will pay huge rewards. Adam Othman on Motley thinks this stock is a winner no matter what the market does. The company put out a Press Release on their 2022 results. Simply Wall Street via Yahoo Finance put out a report on this stock. Simply Wall Street gives this stock 3 stars out of 5, and has one warning of has a high level of debt
Canadian Pacific is a Class-1 railroad operating on more than 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 AGF Management Ltd (TSX-AGF.B, OTC-AGFMF) ... learn more. The next stock I will write about will be Allied Properties Real Estate Investment Trust (TSX-AP.UN, OTC-APYRF) ... learn more on Monday, February 13, 2023 around 5 pm.
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