Wednesday, May 6, 2015

Recent Buy

     I decided to put some cash to work for me on May 4, 2015.  I was looking to invest in a dividend growth stock that had stability and poised for long term growth of profits and dividends.

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
A metric often used by railways is a term called operating ratio.
    "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.
    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
For CN Rail, the operating ratio improved to 65.7% from from 69.6 %, which represents an improvement of 3.9%.

    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.
 Future Growth

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.


  1. IP,

    I love the railroads. There's some investment ahead which might constrain returns... but it's hard to find a business model with more enduring competitive advantages that are built in.

    I'm going after UNP right now, but CNI is next on the list.


    1. Dividend Mantra,

      Thanks for dropping by. Definitely railroads have strong competive advantages. It would be extremely hard to start a railway from scratch.

      I will smile a little when I hear people complain the train is taking too long. I will be seeing revenue on wheels now being an owner.

  2. Nothing wrong with the rails. It seems like a few of the dividend bloggers have been buying them up recently as many have fallen from recent highs and are at much better prices. I think lower oil pushed the rails down as oil transport slowed because of production cuts. Thanks for sharing.

    1. DivHut,

      Thanks for dropping by. The railways are a pretty safe investment due to their strong competitive advantages as it would be difficult to start a rail way. I would not mind them dropping more as I would not picking up more shares

  3. CN is a fantastic company and I own has a some huge competitive advantages over the other companies by serving three coasts.

    Good to have you as a fellow shareholder

    1. Roadmap2Retire,

      CN is an awesome company to be a shareholder. CN services the port of Halifax in which CP rail does not. CP is still a great company that has made improvements in the last few years.

      I will just smile when I hear people complain about waiting for a CN train to pass through a road so they can get to their destination quicker.

  4. Great purchase Investing pursuits,

    I actually have my eye on CNR as well, especially after the recent losses in the stock price. I just wished the yield would at least be above 2%, as is one of my screening requirements... The dividend growth on it is good though. I am thinking of jumping into CNQ soon instead.

    Best regards,
    Dividend Beginner

    1. Dividend Beginner,

      The fall in price is a welcome surprise. I would like to take advantage of it by purchasing more shares but not enough capital in TFSA to make another purchase. But I bought 2 call option contracts and benefits a little that way. The yield for CNR has historically been low, as there is demand for this stock so the price will go up, causing the yield to go down. That being said CNR was a great dividend growth rate.