Linked here is a PDF copy of my detailed analysis of Canadian National Railway Company (CNI ADR:NYSE) (alt.1, alt.2). 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: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. CNI is trading at a discount to 2.) and 3.) above. If I exclude the high and low valuation, and average the remaining two valuations, CNI is trading at a 1.5% discount. CNI has a Star added for trading at a fair value.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. CNI earned Stars in 1.), 2.) and 3.) above. It has grown its dividends for 12+ years.

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: 1.) NPV MMA Diff. and 2.) Years to >MMA. CNI did not earn any Stars in this section. With a current yield of 1.8%, has a NPV MMA Diff. of $8,246 (per thousand), which is less than the $10,000 threshold needed to earn a Star. Based on its current yield and estimated growth rate of 17.7%, it will take CNI 11 years to exceed the earnings of a MMA yielding 4.61%.

Other: CNI is not a S&P 500 Dividend Aristocrat or a member of The Broad Dividend Achievers™ Index. S&P's qualitative risk assessment is low based on CNI's strong profitability, cash flow generation, balance sheet and a diverse customer base. CNI is one of the most efficiently run railroads and should be able to maintain its competitive advantage via strict cost controls and efficiency-boosting measures.

Conclusion: Quantitatively, CNI earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned no Stars in the Dividend Income vs. MMA section for a total of four Stars, which rates it as a 4 Star-Buy stock.

My original investment in CNI was in November 2007. My annualized return on CNI from Sep/2007 through Friday is +32.62% with a year-to-date it is a gain of 12.3%. During my short time to hold CNI, I have been well-pleased with its performance. With the CNI trading below the five-year historical average, I will continue to add to my position as my allocation allows and until circumstances dictate a different coarse of action.

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 own shares of CNI (1.8% of my Income Portfolio).

What are your thoughts on CNI?


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6 comments

  1. Brooke // April 21, 2008 at 7:48 AM

    D4L - this is amazing. You are really down in the weeds with all the info on this site - I had no idea. The Acrobat document blew me away. I guess now that I have a knowledgeable friend, I should probably get involved in investing. Any tips where to start?

    By the way, you've been tagged for a meme over at my site!

  2. Dividends4Life // April 21, 2008 at 1:12 PM

    Brooke: It's been great to have some of the ladies posting lately. Thanks for your kind words. I am working on an article on how to get started investing. The short of it is to ease in to determine your risk tolerance. Not knowing your particulars (and I am not qualified as a professional, even if I did),let me approach it this way, if I were starting today, I would begin with a broad index fund such as the S&P 500 (VFINX or SPY)then gradually ease into other investments as I fully understood what I was doing and the risks associated with each investment. This is true also for the S&P 500 fund. I look forward to chatting with you again.

    Best Wishes,
    D4L

  3. Mark @ TheLocoMono // April 21, 2008 at 8:39 PM

    It would be great to see a post about how to get started. I am a little lost with all the different online trading accounts out there and I know that 19.95 per trade is way too much, but beyond that, I don't know much else.

    It is interesting to see the Canadian Railway stock being reviewed. I have not thought of railway companies outside of the U.S. cuz of Buffet and his focus on U.S. railways. I certainly will look into this.

  4. Dividend Growth Investor // April 22, 2008 at 9:07 AM

    What really amazed me is the fact that the company has maintained the same yield, while increasing its dividends over the past decade. That's truly what any dividend growth investor is looking for - rising dividend income along with capital gains.

  5. Anonymous // April 26, 2008 at 11:30 AM

    D4L:
    I agree that CNI is a stock worth considering, I failed to nibble earlier as it's mainly a north-south rail and is economically sensitive and I was nervous. I'm watching and waiting for $45 entry point. Long term it should do well. Is the PDF link correct, I can't open it?

    RickT

  6. Dividends4Life // April 26, 2008 at 8:27 PM

    RickT: Try it now it should be working. Let me know if you run into anymore links that are not working. It is part of the conversion I blogged about today.

    Best Wishes,
    D4L

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