Wednesday, 5 December 2012

A Look at Canadian National Railway


I’ve long wanted to add Canadian National Railway (CNR) to my holdings. Thing is, it hasn’t been cheap since 2009.

Average Dividend Yield Analysis*

CNR.TO
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Annual Dividend
High Yield
Low Yield
2001
$26.25
$14.15
$0.065
$0.065
$0.065
$0.065
$0.26
1.84%
0.99%
2002
$28.51
$19.09
$0.07125
$0.07125
$0.07125
$0.07125
$0.285
1.49%
1.00%
2003
$27.67
$19.70
$0.08375
$0.08375
$0.08375
$0.08375
$0.335
1.70%
1.21%
2004
$38.05
$24.84
$0.0975
$0.0975
$0.0975
$0.0975
$0.39
1.57%
1.02%
2005
$47.86
$33.41
$0.1250
$0.1250
$0.1250
$0.1250
$0.50
1.50%
1.04%
2006
$55.95
$44.43
$0.1625
$0.1625
$0.1625
$0.1625
$0.65
1.46%
1.16%
2007
$61.00
$45.17
$0.21
$0.21
$0.21
$0.21
$0.84
1.86%
1.38%
2008
$58.44
$39.24
$0.23
$0.23
$0.23
$0.23
$0.92
2.34%
1.57%
2009
$59.14
$37.85
$0.2525
$0.2525
$0.2525
$0.2525
$1.01
2.67%
1.71%
2010
$69.16
$52.76
$0.27
$0.27
$0.27
$0.27
$1.08
2.05%
1.56%
2011
$81.79
$63.72
$0.325
$0.325
$0.325
$0.325
$1.30
2.04%
1.59%
2012


$0.375
$0.375
$0.375
$0.375
$1.50


Stock prices and dividends are per calendar year.
11y ave
1.87%
1.29%
Dividends are recorded in the quarter they were paid.
5y ave
2.19%
1.56%







3y ave
2.25%
1.62%







5y
$68.43
$96.03







3y
$66.61
$92.61






Super Cheap
$56.21


The table shows the 3 year average dividend yield to be 2.25% ((2.67% + 2.05% + 2.04%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $1.50, one would have to pay $66.61 for a 2.25% yield.

Buying the stock at its low in 2009 would have earned you an initial yield of 2.67%. Using the current annual dividend, that corresponds to a stock price of $56.21 today (see “super cheap” price in the table above).

Graham Price

CNR’s 2009, 2010 and 2011 EPS were $3.92, $4.48 and $5.45. 3Y Ave EPS = $4.62.
CNR’s BV is $26.20.
Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $52.11

Cyclically Adjusted Price to Earnings Ratio

CNR’s 10Y Ave EPS = $3.64
CAPE = Stock Price / 10Y Ave EPS = $89.42 / $3.64 = 24.56
A CAPE below 20 is good.

Conclusion

CNR increased EPS from $1.91 in 2002 to $5.45 in 2011. That’s an increase of 2.8 times over 9 years. Not stellar, but not bad either. For the same period, CSX’s EPS increased 4.5 times and NSC’s EPS increased 4.6 times.

Based on my three metrics, the stock price of CNR is way too expensive. Moreover, CNR failed to increase EPS at the same rate as CSX and NSC. A look at the P/E ratio reveals a high 15 for CNR, compared to a more reasonable 11 for CSX and NSC. For the time being, I’ll concentrate on CSX and NSC. I’ll post my analysis of UNP in the coming days.


*My method is not perfect as the stocks low price may have occurred before the annual dividend increase.



2 comments:

  1. It is great to know that percentage of dividend yield is increase at 5%. This is great information for all the dividend investors. Please keep on sharing.
    Thanks.

    sgx dividends

    ReplyDelete
    Replies
    1. Thanks for stopping by IS. It's nice to see others use the information I've put together.

      Delete