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CP Continues To Help Investors Profit…

CP - Canadian Pacific Railway

Canadian Pacific Railway is a leading Canadian transportation company that moves goods and commodities from Montreal to Vancouver in Canada and in the U.S. Midwest and Northeast regions. The company also has easy access to international markets, given its large network of 12,500 miles railways, more than 100 transload facilities across Canada and the U.S. and linkages to key ports in the east and west coast.

Canadian Pacific operates the shortest and fastest routes in key lanes across Canada and the U.S. Its transcontinental service provides the fastest service between Eastern Canada, Calgary, and Vancouver.

Canadian Pacific is known for its reliable and efficient movement and delivery of critical goods to a diversified group of customers in the automotive, food products, energy, industrial and other key markets. It is the only Class 1 railway with significant grain franchises in both Canada and the US. Bulk goods comprised 41% of Canadian Pacific’s 2018 freight revenue followed by Merchandise Goods (37%) and Intermodal (22%). With decades of experience, Canadian Pacific has established long-standing relations with Class 1 and short-line railroads.

Investment Data

Revenue Growth & Market Exposure

Canadian Pacific Railway provides critical services to a highly diversified customer base by moving goods and commodities reliably and efficiently. Customers prefer rail-based transportation as it is the safest, cost-effective, and environmentally friendly means to ship. Canadian Pacific is trusted by reputed names like Shell, ExxonMobil, Honda, Suncor, Loblaws, Home Depot, Cenovus, Cargill, etc.

The company has a sound track record of strong performance in the domestic intermodal and is revamping its product offering in the international intermodal. It has already secured contracts worth more than $1 billion and has customer visibility beyond 2020 in both its intermodal and automotive businesses.

Canadian Pacific is in a good position to leverage its leading market share in the Canadian railroad industry and take advantage of Canada’s trade industry. More than 50% of western Canada grain elevator capacity is located on Canadian Pacific. The company is further investing millions of dollars in building new high capacity grain hoppers, which is expected to increase by 25% more grain transport per train.

Canadian Pacific Railway moves 85% of Canadian export metallurgical coal, and ships 70% of potash moving in North America. It has sufficient room for future growth given its ability to increase the train length, network and terminal capacity expansion, and surplus land and locomotives availability. It is also collaborating with regional railroads to extend its reach.

An industry leading network, access to strategic ports and leadership in transporting key commodities are Canadian Pacific’s major advantages. The company is expecting mid-single digit revenue ton miles (RTM) growth during 2018-2020.

Dividends

Canadian Pacific has grown its dividend by more than 21% over the last three years and last raised it by 27%. It has increased its dividend for four consecutive years and has an average annual yield of 1.1% currently. A low payout ratio of 20% provides plenty of room for future dividend growth.

Canadian Pacific also has a share repurchase program and it has repurchased more than 37 million of its shares since 2014. The company has returned more than $8 billion to its shareholders in dividends and share repurchase, over the last five years. Its earnings have also grown by more than 20% during the same time.

Canadian Pacific is expecting earnings growth in the double digit CAGR range during 2018-2020. A highly diversified customer and industry base further ensures that the company does not suffer as a consequence of a slowdown in any one industry. This helps in achieving safe and secure cash flows. Investors can, therefore, expect dividends to comfortably grow in the mid to high double-digit range going forward.

Railroad is a highly capital intensive business constantly requiring upgrades to networks and railroads and large investment in capacity expansion. The company has increased its trains’ length and speed by 9% and 19%, respectively over the last five years. Canadian Pacific is also investing in network upgrades. The company’s strong pipeline of high return projects should support dividend growth in the future.

Competition

Canadian Pacific suffers competition from other railways, motor carriers, ship and barge operators, and pipelines. Canadian National Railway and BNSF Railway Company are its primary competitors, operating in Canadian Pacifics’ major territories. With extensive years of experience under its belt, Canadian Pacific Railway has gained the reputation of a global transportation solution provider. The company operates in a highly regulated environment which acts as a significant entry barrier for any newcomer.

Bottom Line

As a leading railroad transporter, Canadian Pacific should benefit from an increasing crop production in North America and rising global grain demand. The company should benefit from its ongoing investments towards network development, enhancing its product offering, improving customer experience and driving supply chain efficiency. Canadian Pacific is in a good position to leverage its transload facilities and existing facilities to grow. It should continue its dividend growth trend, driven by a strong demand environment, large network capacity and its ability to provide reliable services.

CP definitely had a good turn around story under Mr. Harrison helping CP compete with CNR. Both of which are good holdings provided your are a dividend growth investor as the dividend yield is on the low en.

CP vs Indexes

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.

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