CP Rail (TSX:CP): A Top Stock for Your RRSP

Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP) posted blowout fourth-quarter results. It proved once again why its stock belongs in your RRSP.

| More on:

It’s Registered Retirement Savings Plan (RRSP) top-up season once again. Investors are looking for stable, reliable investments that will be the backbone of their portfolios come retirement. On Wednesday, Canadian Pacific Rail (TSX: CP)(NYSE: CP) released fourth-quarter and year-end results. It once again proved why it is a top pick for your RRSP.

Canadian Pacific fourth-quarter earnings

CP Rail posted blowout fourth-quarter earnings. For those who think that railways are a slow-growth story, think again. Adjusted earnings per share of $4.55 beat by $0.23 and revenue of $2 billion topped estimates by $20 million. Year over year, it represented growth of 41% and 17% respectively. Double-digit growth from safe and reliable blue-chip companies is tough to come by.

Its focus on improving logistics led to a record-low operational ratio, which improved by 370 basis points to 56.5%. By the same token, operating income jumped 28% to $874 million. There wasn’t anything not to like about the company’s fourth-quarter results.

In the quarter, freight revenue increased by 18% with a significant increase in energy, chemicals, and plastics (46%) and potash (24%). The growth in the energy segment is not surprising, as oil producers have been forced to ship more oil by rail. Until the pipeline capacity issue is resolved, CP Rail will continue to benefit.

For the year, it saw double-digit growth in revenue (12%), earnings per share (27%), operating income (12%), and operating cash flow (24%).

Top blue-chip stock for growth

Another bit of positive news was that the company announced 2019 guidance. Adjusted earnings per share are expected to grow by double digits on the back of mid-single-digit volume growth. The company intends to spend $1.6 billion in capital expenditures. Of note, guidance can be impacted by negative currency rates and a higher-than-expected interest rate.

This is in line with analysts who are estimating 20% earnings growth and 9% revenue growth on average through 2020.

The company is also becoming a legitimate income play. Although CP Rail’s current yield of 0.99% isn’t attractive, it is growing the dividend at a double-digit pace. Over the past three years, it has almost doubled its dividend with a compound annual growth rate of almost 30%. With a payout ratio in the mid-teens, investors can expect this pace of dividend growth to continue. It also has a significant share-buyback plan, which is a boon to the company’s shareholders.

Foolish takeaway

CP Rail has been as reliable as it gets. It has not missed earnings estimates since the fourth quarter of 2016. On top of that, it beat estimates in 11 of those 12 quarters. Over the same time frame, it only missed on revenue once and beat estimates on 10 occasions. CP Rail is a top pick for your RRSP portfolio.

Fool contributor Mat Litalien has no position in any of the stocks mentioned.

More on Dividend Stocks

the word REIT is an acronym for real estate investment trust
Dividend Stocks

This Industrial REIT Could Be a Quiet Growth Engine

Learn how Granite REIT utilizes a strategic approach to enhance portfolio growth through its diverse industrial properties.

Read more »

woman gazes forward out window to future
Dividend Stocks

The 5 Canadian Stocks So Safe I’d Tell My Mother to Buy Them

These five Canadian stocks combine durable businesses, strong competitive positions, and long-term resilience for cautious investors.

Read more »

man looks surprised at investment growth
Dividend Stocks

These 2 Canadian Dividend Stocks Are Screaming Buys, and I’m Taking The Bait

With reliable business models, stable cash flows, consistent dividends, and healthy growth prospects, these two dividend stocks offer compelling buying…

Read more »

Group of people network together with connected devices
Dividend Stocks

Enbridge Names New CEO Michele Harradence: What Investors Need to Know

Enbridge’s upcoming CEO transition puts Michele Harradence in charge of a company with a $41 billion growth backlog, diversified energy…

Read more »

Man meditating in lotus position outdoor on patio
Dividend Stocks

2 TSX Dividend Stocks Perfect for Patient Investors

With resilient business models, consistent dividend growth, and compelling long-term prospects, these two dividend stocks offer an attractive opportunity for…

Read more »

Canada Day fireworks over two Adirondack chairs on the wooden dock in Ontario, Canada
Dividend Stocks

Is Enbridge Stock Still a Buy With CEO Greg Ebel Retiring?

Enbridge CEO Greg Ebel is retiring and Michele Harradence takes over in 2027. Here is what the leadership change means…

Read more »

ETF is short for exchange traded fund, a popular investment choice for Canadians
Dividend Stocks

The Canadian Energy ETF to Own as Oil Prices Surge

The iShares S&P/TSX Capped Energy ETF (TSX:XEG) lets you buy Canadian energy stocks in a diversified package.

Read more »

Couple working on laptops at home and fist bumping
Dividend Stocks

$200 a Month in Tax-Free Income Is Closer Than You Think With These 2 TSX Stocks

Turn unused TFSA room into a $200 monthly, tax-free “paycheque” with two steady Canadian dividend payers.

Read more »