Zacks_Analysts' Blog : Canadian Pacific Raises Dividend - Analyst Blog

Canadian Pacific Railway Limited (CP), one of the leading railroad companies in Canada, boosted its upcoming quarterly dividend by an impressive 11%. Accordingly, the company will pay a dividend of 30 Canadian cents per share, up from 27 Canadian cents, on July 25, 2011 to shareholders of record on June 24. The increased quarterly dividend equates to C$1.20 on an annualized basis.

Canadian Pacific has remained committed to increasing shareholder value through dividend payments. Last year in May,  the company had raised its dividend by 9% to 27 Canadian cents per share, which resulted in an annual dividend of C$1.08.

In the first quarter, the company reported subdued financial results due to weather-related issues. The company’s network and services were severely impacted by a difficult operating environment in the winter season. As a result, operating income hit rock bottom and costs crept up.

The company’s balance sheet also suffered as cash and cash equivalents plunged to C$310.5 million in the first quarter from C$723.8 million a year ago.

However, we believe the dividend hike stems from the positive outlook for the second quarter of 2011, when management is hopeful of registering a growth that will supersede the five years average.

Given an accelerated economic recovery, the company remains optimistic over its long-term growth prospects. Canadian Pacific’s expanded fleet of crew, cars and locomotives are expected to meet growing demand and register growth across all product lines.

In the remainder of fiscal 2011, the company expects higher demand in export coal given its 10-year contract with Teck Resources Limited (TCK) to transport metallurgical coal. Additionally, grain shipments are also likely register significant growth supported by an increase in crop plantation and the recent grain transportation agreement with Canadian Wheat Board. Further, the company seeks to achieve its long-term target of operating ratio in the low 70s through effective cost control and increased revenue generation. However, the current volatility in fuel prices, competitive threats form railroads like Canadian National Railway (CNI) and flood conditions in Canada keep us on the sidelines.

We currently have a long-term Neutral rating on Canadian Pacific. The company holds a short-term (1–3 months) Zacks # 4 (Sell) Rank.