Linked here is a PDF copy of my detailed analysis of Canadian National Railway Company (NYSE:CNI). Below are some highlights from the above linked analysis:
Company Description: Canadian National Railway Company (CNI) operates Canada's largest railroad, linking customers in Canada, the U.S., and Mexico through approximately 20,400 miles of track.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to >MMA
Other: CNI is a member of the International Dividend Achievers™ Index. CNI has a strong balance sheet resulting from stable profitability, cash flow and a diverse customer base. Exercising strict cost controls and efficiency-boosting measures has made CNI is one of the most well-run railroads in North America. Risks include exposure to economic cycles, fuel prices, currency volatility, customer resistance to price increases and labor unrest.
Conclusion: CNI earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a net total of four Stars. This quantitatively ranks CNI as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price would need to drop to $38.78 for CNI's NPV MMA Differential to be around the $7,500 that I like to see. At that price the stock would yield 2.27%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $7,500 NPV MMA Differential I'm looking for, the calculated rate is 17.3%. This dividend growth rate is above the 15.0% used in this analysis.
From a valuation standpoint, CNI as attractively valued. However, the strengthening U.S. dollar vs. the Canadian dollar has eroded the dividend from $0.2318/share in March 2008 to $0.1933/share in December 2008. Given this, I would only add to my position when the stock is trading below $38.78.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in CNI (2.7% of my Income Portfolio) .
What are your thoughts on CNI?