Wednesday, February 01, 2012

Canadian National RR (CNI) 2012 Review

Canadian National Railway (CNI) operates Canada’s largest railroad system spanning the East/West width of the country plus a North/South axis that runs through the US mid West to the Gulf of Mexico.

The railroad has grown its profits and dividends at a 16-20% pace over the past 10 years earning a 14-18%+ return on equity. The company weathered the 2008/2009 global recession very well. Going forward, earnings should increase at an above average pace as result of:

(1) volume growth and improved pricing that accompanies [a] an improving economy, [b] the opening of the Prince Rupert Intermodal Terminal, a new container terminal that provides the fastest and most cost effective route between Asia and the interior of North America, [c] increased resource demand particularly in coal and grains and [d] rising demand for pipe, machinery and equipment associated with oil and gas development in Western Canada,

(2) aggressive productivity improvement such as the SmartYard technology, precision engineering, shop consolidation, train length, car velocity, fuel productivity, extended sidings and yard integration,

(3) cost control measures.

(4) an ongoing share repurchase program.


(1) intense competition,

(2) the company is unionized and therefore subject to strikes, work stoppages, etc.

(3) it is subject to the volatility in fuel prices.

The company is rated A by Value Line, has a debt/equity ratio of approximately 32% and its stock yields 1.7%.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2002
CNI 1.7% 16% 26% 9
IND 1.7 14 15 NA

Debt/Equity ROE EPS Down Since 2002 Net Margin Value Line Rating
CNI 32% 19% 1 25% A
IND 40 17 NA 19 NA


Note: CNI stock made good progress off its March 2009 low, surpassing the down trend off it May 2008 high (straight red line) and the November 2008 trading high (green line). Long term, the stock is in an up trend (blue lines). In July 2011, CNI broke the up trend off its March 2009 low and re-set to a trading range (purple lines). The wiggly red line is the 50 day moving average. The Dividend Growth Portfolio owns a 50% position in the stock. Shares would be Added at $63; the lower boundary of its Sell Half Range is $90.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.