What Investment Did I Make?
I decided to make an investment in a railway. Canadian National Railway has railroads coast to coast in Canada and serves some major markets in the United States. The company trades on the Toronto Stock Exchange under the ticker symbol CNR and CNI on the New York Stock Exchange.
The stock price of CNR has decreased over the past 3 months. As of the close on May 4, the stock is down 7.72% over the last 3 months. The stock is down 4.60% over the last month and down 0.49% YTD. This decrease in price can be the result of recent government actions in Canada and United States in regards to rail cars. This will be a cost that all rail roads in Canada and the United States will have to endure to make rail transportation safer for hauling dangerous goods, such as crude oil and propane.
Canadian National Railway released its first quarter earnings for the quarter ending March 31, 2015 on April 20. Some of the highlights from the quarter earnings release are as follows:
- Net Income $704 million Canadian compared to $623 million Canadian in first quarter of 2014
- Q1 2015 net income of $704 million Canadian increased 28% over adjusted net income of $551 million for the first quarter of 2014
- Q1 2015 operation income increased 30% to $1,063 million Canadian
- Q1 2015 revenues increased 15 percent to $3,098 million Canadian
- Revenue tonne miles grew 7% and carloading increased 9%
- Free cash flow for first quarter was $521 million Canadian, which is up from $494 million Canadian from Q1 201
"The operating ratio is a financial term defined as a company's operating expenses as a percentage of revenue. This financial ratio is most commonly used for industries which require a large percentage of revenues to maintain operations, such as railroads. In railroading, an operating ratio of 80 or lower is considered desirable.For CN Rail, the operating ratio improved to 65.7% from from 69.6 %, which represents an improvement of 3.9%.
The operating ratio can be used to determine the efficiency of a company's management by comparing operating expenses to net sales. It is calculated by dividing the operating expenses by the net sales. The smaller the ratio, the greater the organization's ability to generate profit. The ratio does not factor in expansion or debt repayment.
Alternatively, it may be expressed as a ratio of sales to cost. In such case a higher ratio indicates a better ability to generate revenue. " (Source www.wikipedia.com)
The revenues increased in all areas except the coal shipments, which decreased by 13%. CN Rail transports things such as grains and fertilizers, forest products, automotive, metals and minerals, petroleum and chemicals, and intermodal. Intermodal tranport involves transport containers that can be transported by cargo ship, train and truck. These intermodal containers can be 53 ft, 40 ft or 20ft containers.
The company is aiming for double digit growth for 2015. The company plans to invest in safety and improve productivity. CN Rail recently announced a 25% dividend increase and aiming for a dividend payout ratio of 35%.
CN Rail is known as often referred to the best run rail road in North America. Railways allow for the efficient transportation of goods over long distances at reduce costs and environments impacts. We all have seen these double decker trains the contain lots of shipping containers and 53 ft intermodal containers. One double stack freight train replaces hundreds of trucks, which drastically reduces costs for shippers and has a less environmental impact.
The company will have increased costs over the next few years by making rail cars more safer or replacing cars to meet government guidelines of rail transportation in both Canada and the United States.
On May 4 2015, I purchased 25 shares of CNR at $79.75 per share for a total cost of $1998.79 included commissions. This investment was made inside my TFSA. The yield on my initial investment is 1.563% based on the current annual dividend of $1.25 per share. This purchase adds 31.25 to my annual dividend income. The company has a 5 year dividend growth rate of 14.64% compared to the industry average of 6.83% .
I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.
Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.