A Network of Three-Coast System
CNI has a network of railroads that provides access to the Pacific Coast, the Atlantic Coast, and the Gulf Coast (see chart below). This is advantageous because compared to other means of transportation such as highways, it is far more economical to transport goods through railroads. CNIs vast network of railroads is difficult to replicate.
The Ability to Renew Its Price Above the Inflation Rate
Due to its three-coast system, the company does have the ability to negotiate higher prices year over year. As can be seen from the bar chart below, the company is able to renew its price above the inflation rate every year.
Share Buybacks and Consistent Dividend Increases
Last year, CNI raised its quarterly dividend by 10% to C$0.455 per share. Its dividend yield is about 1.9%. Its dividend is well supported by its growing free cash flow. Its payout ratio based on free cash flow is about 43.6% in 2017. The company has an excellent track record of increasing its dividend. In fact, it has increased its dividend every year since its IPO in 1995 and has grown its dividend by a compound annual growth rate of 16% over 22 years. CNI also has an ambitious share buyback program. Since October 2017, the company has repurchased over 9 million shares for an amount of C$925 million. This represented about 1.2% of its total shares outstanding. CNIs share repurchase program should provide some support to its share price.
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