Canadian National Railway (CNI) 2013 Review

Canadian National Railway 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.  Going forward, earnings should increase at an above average pace as result of:

(1) volume growth and improved pricing that accompanies [a] the new 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, [b] increased resource demand particularly in thermal coal and grains and [c] rising demand for metals and fertilizer,

(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.

 Negatives:

(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 34% and its stock yields 1.8%.

  Statistical Summary

                 Stock      Dividend         Payout      # Increases  

                Yield      Growth Rate     Ratio        Since 2003

CNI           1.8%          15%             27%               9

Ind Ave      2.2             12                28                NA 

                Debt/                     EPS Down       Net        Value Line

              Equity         ROE      Since 2003      Margin       Rating

CNI          34%            22%           1                25%           A

Ind Ave     39               16             NA             17             NA

     Chart

            Note: CNI stock made great progress off its March 2009 low, quickly surpassing the downtrend off its May 2008 high (straight red line) and the November 2008 trading high (green line).  Long term the stock is in an uptrend (blue lines).  Intermediate term it is in an uptrend (purple lines).  The wiggly red line is the 50 day moving average.  The Dividend Growth Portfolio owns a full position in CNI.  The upper boundary of its Buy Value Range is $60; the lower boundary of its Sell Half Range is $105.

 http://finance.yahoo.com/q?s=CNI

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