This railroad is expected to grow earnings by 17% next year. The company has a current annual dividend yield of 1.93%, paid quarterly.
Canadian National Railway Company (CNI, CNR.TO)
From Internet Wealth Builder
Canadian National Railway operates across Canada and down through the central US to the Gulf of Mexico with 19,500 route miles of track. About two-thirds of CN’s revenues and profits are from Canada and the rest is from the US.
CN’s share price was somewhat volatile in 2021 due to the travails of its bidding war with CP in a failed attempt to buy Kansas City Southern, and the ebbs and flows of the pandemic and economic outlook. In the end, CN rose 11% in 2021. So far in 2022, the stock is up 1.8%. CN has provided huge gains since it became a publicly traded company back in 1995. Periodic pullbacks in the share price have always proven to be buying opportunities.
CN’s earnings per share were up 19% in the fourth quarter of 2021 and up 12% for the full year. CN has typically managed to increase earnings year after year due to a combination of generally increasing freight levels, cost efficiencies, and rate increases.
CN recently lost its bidding war with CP over Kansas City Southern after regulators failed to approve a crucial early step required for the merger. But CN ultimately booked a $700 million gain due to break fees from the aborted Kansas City Southern deal. This amounted to $1 per share pre-tax. CN also recently came under major criticism from an activist share owner (known as TCI) regarding both the proposed merger and CN’s recent performance. TCI proposed to replace the CEO, the chair of the board, and several other board members. CN replied in an extremely responsive and reactive manner. The dispute has been settled after CN did name a new CEO and several new board members and announced a large share buy-back program. CN’s speed and reactiveness in dealing with the issue was impressive.
CN’s dividend, effective with the March 2022 distribution, was increased by a hefty 19% to $0.7325 cents per quarter ($2.93 per year). This was the 26th consecutive year of dividend increases.
CN’s return on equity is very strong at 20% and it has averaged a very impressive 23% over the past ten calendar years. The price to book value ratio at 5.0 is high but reflects the attractive return on equity level. The p/e appears somewhat unattractively high at 27. The dividend yield is modest. Overall, these value ratios demonstrate a very strong company but one that may be about fully valued.
The outlook for 2022 is very strong, with the company projecting a 20% increase in adjusted profit per share. CN’s large share repurchase plans should also help support the stock price over the next year. It’s safe to bet that CN’s earnings will continue to grow over the longer term.
CN is a very high-quality company and investment. Customers often have little option but to ship by rail and in Canada there are only two rail companies to choose from. As a result, CN has been able to increase its freight rates steadily. The history of CN’s rising share price and earnings are also testaments to its quality.
The company is very well managed, and this was demonstrated by its recent speedy and decisive reaction to the activist share owner, as noted above. Investors can safely predict that CN will continue to increase its earnings for many years to come. In addition, CN is not the type of stock that ever trades at sky-high valuations. That adds to its quality as an investment since buying at the wrong time becomes less of an issue. This high-quality stock is very well suited for RRSP investments.
Action now: Buy. CN is a very strong and stable company. Investors have been rewarded for holding this stock for the long term and that is likely to continue to be the case.
Shawn Allen in Gordon Pape’s Internet Wealth Builder, buildingwealth.ca, 1-888-287-8229, February 28, 2022