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Number Cruncher Dividend investors: There’s a freight boom coming down the track

What are we looking for?

Rail car and railway stocks with future growth to sustain their dividends.

The screen

Alberta this week confirmed plans to spend $3.7-billion to lease 4,400 rail cars over three years from Canadian Pacific Railway Ltd. and Canadian National Railway Co. By next year, those thousands of units will move 120,000 barrels a day of crude oil – now stranded in Alberta because of limited pipeline capacity – to refineries.

The provincial plan highlights the expanding demand for rail cars and railway transportation not just in Canada, as it replaces and expands its aging fleet, but also the United States and key global markets.

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Our search starts with North American dividend-paying companies – both rail-car makers and leasers – well-placed to benefit from the freight boom. From there, we apply our TSI Dividend Sustainability Rating System, which awards points to a stock based on key factors:

  • One point for five years of continuous dividend payments – two points for more than five;
  • Two points if it raised the payment in the past five years;
  • One point for management’s commitment to dividends;
  • One point for operating in non-cyclical industries;
  • One point for limited exposure to foreign currency rates and freedom from political interference;
  • Two points for a strong balance sheet, including manageable debt and adequate cash;
  • Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
  • One point if the company is a leader in its industry.

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below-average sustainability, one to three points.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Our TSI Dividend Sustainability Rating System generated six stocks. CP and CN are Canada’s pre-eminent rail companies. They face growing demand from shippers of oil, wheat, lumber and other commodities. In the United States, Trinity Industries Inc. makes rail cars and also provides leasing and other services. Chicago-based GATX Corp. specializes in tank car, freight car and locomotive leasing. Greenbrier Cos. Inc. makes and repairs freight cars worldwide, while Wabtec Corp. provides equipment and services to the global rail industry. It recently acquired General Electric Co.’s locomotive business.

Select railway and rail car dividend stocks

Ranking*CompanyTickerDividend Sustainability RatingPointsDiv. Yield %Market Cap ($Bil)Recent Price ($)1Yr Total Return (%) 
1Canadian National Railway Co. CNR-THighest101.979.7113.3918.8
2Canadian Pacific Railway Ltd.CP-THighest101.037.3273.9119.0
3GATX Corp.GATX-NAbove Average82.32.979.1012.7
4Greenbrier Cos. Inc. GBX-NAbove Average82.31.444.02-15.6
5Trinity Industries Inc.TRN-NAbove Average82.03.725.99-25.3
6Wabtec Corp.WAB-NAbove Average80.67.275.08-6.2

Source: Dividend Advisor

*Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements.

We advise investors to do additional research on any investments we identify here.

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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