One of the leading Canadian railroad companies, Canadian Pacific Railway Limited (CP) announced the repurchase and cancellation of 456,791 of its common shares under a private agreement with a third-party seller. The company expects repurchase value for these common shares to be at a discount to the prevailing market price on the Toronto Stock Exchange at the time of purchase.
The repurchase will be a part of the previously announced buyback program for 5,270,374 shares as announced on Mar 11, 2014.
Apart from share repurchases, Canadian Pacific also seeks to reward its shareholders through increased dividend payments. Over the last couple of years, the company has increased its annual dividend by an average of 10%. Currently, the company pays a dividend of 35 Canadian cents per share, which represented a hike of 16.7% in 2012 from 30 Canadian cents in 2011. We believe the increased shareholder returns reflect the company’s confidence in delivering strong earnings as economic growth accelerates.
We remain encouraged by Canadian Pacific’s healthy performance backed by volume addition, safety and efficiency along with favourable cost metrics. Additionally, pricing above inflationary levels (3–4% year-over-year growth) is expected to aid the company’s projected revenue growth of 6% to 7% in 2014. In addition, Canadian Pacific remains committed to generating an operating ratio in the low 70s. The company also targets an operating ratio of 65% in 2014, way ahead of its initial target of 2016, compelling a competitive advantage against peers like Canadian National Railway Company(CNI), Union Pacific Corporation (UNP) andKansas City Southern (KSU).
Further, Canadian Pacific is strengthening its balance sheet by improving near-term liquidity with debt offering and pension prepayments. Last year, the company registered a 15% return on portfolio based on pension assets. As a result, it expects a pension income of C$52 million in 2014 versus an expense of C$45 million in 2013, which remains accretive to its cash flows. In addition, the company also projects an income of C$50 million in 2015 based on portfolios for pension assets.
Currently, Canadian Pacific has a Zacks Rank #3 (Hold).