Canadian Pacific Railway is a leading Canadian transportation company that carries goods from Montreal to Vancouver, Canada, and the Midwest and Northeast regions of the United States.

The company has easy access to international markets with its extensive rail network of 13,000 miles, more than 100 transshipment points in Canada and the United States, and connections to major ports on the east and west coasts.

The Canadian Pacific operates the shortest and fastest routes in key lanes in Canada and the United States. The transcontinental service offers the fastest service between Eastern Canada, Calgary and Vancouver.

The Canadian Pacific is known for its reliable and efficient movement and delivery of critical goods to a diverse group of customers in the automotive, food, energy, industrial and other key markets. It is the only Class 1 railroad with significant grain franchises in both Canada and the United States. Bulk cargo accounted for 43% of Canadian Pacific’s freight revenue in 2020, followed by merchandise (36%) and intermodal (21%).

With decades of experience, Canadian Pacific has built longstanding relationships with Class 1 and Short Distance Railways. Geographically, global business (Asia and Europe) accounted for ~ 37% of freight revenue in 2019, while cross-border and domestic business accounted for 32% and 31%, respectively.

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Investment data

Sales growth and market presence

The Canadian Pacific Railway provides essential services to a highly diversified customer base by moving goods reliably and efficiently. The company carries 85% of Canada’s metallurgical export coal and 70% of North America’s potash.

It offers ample room for future growth as it can increase train length, network, expansion of terminal capacity, and the availability of excess land and locomotives. Customers prefer rail transport as it is the safest, cheapest and most environmentally friendly means of transport. Well-known names such as Shell, ExxonMobil, Honda, Suncor, Loblaws, Home Depot, Cenovus, Cargill, etc. trust the Canadian Pacific.

The company has a solid track record in national intermodal and is revising its product range in international intermodal.

The Canadian Pacific is well positioned to capitalize on its leading market share in the Canadian rail industry and benefit from Canada’s growing commercial industry. The Canadian Pacific should benefit from solid grain, potash and coal fundamentals.

Positive news about US trade settlements and talks with China should boost commodity exports. In the goods sector, CP continues to drive success through its impeccable service, the high utilization of its assets and the transhipment network. The company’s reloading strategy comes before success as the terminal capacity is unique and land is available for inexpensive expansion.

The Canadian Pacific has strengthened its network by acquiring the Central Maine and Quebec Railway in 2020 for access to the northeastern United States and the Atlantic Ocean of Canada. In addition, the acquisition of the 83.5% stake in the Detroit River Tunnel Partnership was completed and plans to build and operate a leading transshipment and distribution facility with Maersk in Vancouver were announced. The Canadian Pacific performed well last year, driven by improvements in efficiency, reductions in losses and a decrease in fuel prices.

The company recorded speeds of 22 mph compared to 22.2 mph in 2019 and a 1% decrease in locomotive productivity. However, the length of the trains improved by 7% and the Canadian Pacific saw a strong safety performance in 2020. The company has a strong pipeline of unique opportunities for 2021.

Dividends

The Canadian Pacific has increased its dividend by more than 12% CAGR over the past decade, most recently increasing it by 14.5%. It has increased its dividend for five straight years to become a dividend aristocrat and currently has an average annual return of 0.84%.

A low payout ratio of 21% offers plenty of room for future dividend growth. The Canadian Pacific returned over $ 2 billion to shareholders in 2020 and $ 6.8 billion in 2016-2020. Earnings have also grown by 18% CAGR over the past decade. The company aims for a payout ratio of 25% to 30% in the long term.

The railroad is a very capital-intensive business that requires constant upgrades of networks and railways, as well as large investments in capacity expansion. Canadian Pacific is also investing in network upgrades. The strong pipeline of high-return projects should support dividend growth going forward.

A highly diversified customer and industry base provides competitive access to key markets in Canada and the United States and provides much-needed immunity to industry fluctuations and secure cash flow.

CP’s cost discipline has enabled strong free cash flow generation. A disciplined approach to capital investments and the strong returns should continue to drive margin improvement. The Canadian Pacific has successfully achieved a 13% increase in average train weight and 10% average train length over the past five years, resulting in better asset utilization and lower costs.

Investments in the modernization of locomotives and the purchase of hopper wagons are expected to result in capital expenditures in the short term. The company is aiming for high single-digit RTM growth and high single- to double-digit EPS growth in 2021.

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competition

The Canadian Pacific suffers from competition from other railways, motor companies, shipping and inland shipping companies, and pipelines. The Canadian National Railway and the BNSF Railway Company are their main competitors, operating in the major areas of the Canadian Pacific.

With many years of experience, the Canadian Pacific Railway has built a reputation as a global provider of transportation solutions. The company operates in a highly regulated environment that presents a significant barrier to entry for every newcomer.

Bottom line

The Canadian Pacific is likely to continue its dividend growth streak with ease into the future. It is uniquely positioned to take advantage of its low cost base and world class service and grow with its customers. As the leading rail transporter, the Canadian Pacific should benefit from rising crop production in North America and increasing global grain demand, and normalize the refined fuel markets. The Canadian Pacific has enough space to add to its footprint due to its large number of locomotives, huge shipyard and terminal capacity, growing network capacity, and excess land.

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