Seeking Alpha
Profile| Send Message| ()  

I took the opportunity of further declines in the markets today to strengthen my position in Canadian Pacific Railway (CP). After buying a full position in Canadian National Railway (CNI) on Friday I was looking to rebalance my railway holdings into my original targeted ratio.

I view CNI as the better business and hold a higher weighting in my Canadian dividend portfolio of it (DivG) and I consider CNR the best North American rail company, but CP isn't far behind.

The long-term fundamentals of rail transportation are very strong even in the face of higher fuel prices. There continues to be increased demand for the transportation of bulk commodities & products from coast to coast and while transport over land by truck freight continues to be an important aspect of transportation in North America, rail companies continue to struggle to meet demand with adequate supply.

Canadian Pacific is currently trading at an attractive valuation when I consider its relative value compared to historical data.

With a seven year book value growth of over 22%, a yield of 2.10% vs. historical of 1.75% and annual dividend growth in excess of 12.5% CP has more than enough cashflow to continue raising its dividend, pay down corporate debt and continue to finance growth of its operations.

While Canadian Pacific's operating ratio (an industry measure of operating efficiency) continues to lag CNI by roughly 20% the company still continues to perform within management's expectations.

In other news:

I purchased additional shares in Atco Ltd (ACO.X) Tuesday and initiated a position in Diageo PLC (DEO) for my RSP.

After watching a number of my fellow dividend peers getting drunk on Diageo I decided to examine the stock beyond my initial SWOT & PEST from 2007 and really liked its operations, management and diversified product portfolio. With a 5% yield at my purchase price, reasonable forward P/E on acceptable guidance (+/-5% Rule) and expanding operations in global markets DEO adds some much needed diversification to my RSP at a very attractive entry price.

I bought a half position of DEO with the intention to add in the coming months if the valuation falls further or stays put.

Disclosure: I own stocks in CP, CNR, DEO & ACO.X.

Source: The Dividend Express: Canadian Pacific and Canadian National Railways