Long-Term Investors Can Consider Adding North American Railroad Stocks

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North America railroad stocks have declined substantially in the past year. As the volume of coal and oil shipped by rail continues to fall, railroads are adversely impacted. When crude oil was trading over at $100 per barrel, “oil by rail” was projected to be a huge opportunity for railroads when producers especially share oil producers shipped increasing amounts of oil by trains rather than by pipelines. However the plunge in oil prices has dampened the talk of the oil by rail story.Coal is another commodity that is hurting railroads. With lower oil prices and also lower natural gas prices, coal shipments have also declined.

Long-term investors with a time horizon of at least five years can consider adding railroad stocks to their portfolios in a phased manner. Currently railroads are trading at attractive levels compared to a year ago.

There are many advantages of owning railroad stocks. One of the main advantage is that the North American railroad industry is an oligopoly and only a handful of Class I railroads dominate the entire continent. The following is a pictorial representation of the oligopoly nature of the US railroads:

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Monopoly-Madness-US-Railroads-Map-Updated

Source: Bulk Commodities and the Rails: Still Crazy after all these years, Dr. Mark Cooper, Consumer Federation of America

Oil and coal are just two of the many products that railroads transport across the continent. Many other commodities are best suited for transportation by railroads only as opposed to trucks or planes. For example, bulk products such as agricultural commodities are easier and cost-effective to ship by rail than trucks.

The five Class I US railroads are listed below with their current dividend yields:

1.BNSF Railway – Private. Owned by Warren Buffet’s Berkshire Hathaway.

2. CSX Transportation (CSX)
Current Dividend Yield: 3.15%

3. Norfolk Southern Railway (NSC)
Current Dividend Yield: 3.36%

4. Kansas City Southern Railway (KSU)
Current Dividend Yield: 1.74%

5. Union Pacific Railroad (UNP)
Current Dividend Yield: 2.93%

The two Class I Canadian railroads are listed below with their current dividend yields:

1.Company: Canadian National Railway Co (CNI)
Current Dividend Yield: 1.68%

2.Company: Canadian Pacific Railway Ltd(CP)
Current Dividend Yield: 0.84%

Note: Dividend yields noted above are as of Feb 5, 2016. Data is known to be accurate from sources used.Please use your own due diligence before making any investment decisions.

Kansas City Southern operates in the central states and Mexico. Canadian National is the best run North American road and is a dividend grower. Recently the firm increased the quarterly dividend payments by 20%.

Similar to the US, Canada is dominated by just two railroads noted above. The huge country is split into two parts among the railroads with the western part covered by CP and the eastern part by CN.

Though railroad stocks have under-performed the market this year and may be volatile in the short-term, investors picking them up at current levels should earn a high total return provided they hold them for five years or even more.

Disclosure: Long CNI, CSX, NSC and UNP

Knowledge is Power: Shareholder Capitalism, Two-Party Democracy, Alphabet vs. Apple Edition

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Scotland Countryside

Scottish Countryside

Listed Property Company Yields: U.S. vs. Other Countries

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The dividend yield of the S&P 500 is around 2%. This has stayed around the 2% mark for many years. I have mentioned many times before that this low compared to other countries. In addition to that the payout ratio of the US firms is also low. Hence investors looking for income are wise to expand their horizon and venture abroad. Even a short hop north of the border can yield excellent dividend stocks.

listed US property companies also have low yields relative to their peers in other countries as shown in the graph below:

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Listed Property Firms Yield Comparison Globally

Source: Global Real Estate Securities – Market Commentary, Q4, 2015, CBRE Clarion

Canadian listed property companies have yields of 6.3% compared to just 3.7% for US firms. Only UK and Japan have lower yields than the U.S.

The key takeaway for income investors looking at real estate stocks is to cast their net wide and not just focus on U.S. companies.

Gold: Bull and Bear Markets

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Gold prices have declined greatly in the past few years. From a peak of over $1,800 a few years ago it has now fallen to about $1,115 this past Friday.

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gold 10 years

Source: Kitco

The current bear market is in- line with past bear markets. The following table the shows the duration of the past bull and bear markets;

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Gold Bull and Bear Markets

Source: US Funds

From the US Funds article:

With the Fear Trade heating up, it’s important that we manage our expectations. The length and extent of the current bear market, which began in September 2011, might seem unprecedented to many investors. In actuality, it doesn’t veer very far from what we’ve seen in the past, according to data presented by the World Gold Council (WGC).

Reaching back to 1970, the WGC identified five bull and bear markets, with bull markets defined as periods when gold prices rose for longer than two consecutive years, bear markets as the subsequent periods when they fell for a sustained length of time. Although these lengths vary, the cumulative loss in each bear market is relatively uniform, with median returns at negative 42.7 percent.

The present bear market, at negative 44.1 percent, falls easily within the realm of normalcy.

Further, the table suggests that a turnaround in gold prices is overdue.

A few points to remember about investing in Gold:

  • As an asset class, gold does not produce regular income such as dividends or interest.
  • So the only way to profit from investing in gold is waiting for price appreciation.
  • Gold can be a hedge against inflation.
  • Like oil, gold is also a commodity. Hence prices will be volatile.
  • In a well-diversified portfolio, gold can be allocated a small portion of the total assets. However just because equities crash, one should not move all their assets to gold.
  • The largest gold ETF is SPDR Gold Shares (GLD) ETF.

Disclosure; No Positions

The World’s Top 10 Cities With The Most Skyscrapers

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The world’s tallest building is currently being built in Jeddah, Saudi Arabia. The tower will over 1 KM in height reach beyond the clouds with its 167 floors.

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Worlds Tallest Buildings

Source: Saudi City of Jeddah Aims to Build World’s Tallest Tower,WSJ, Feb 2, 2016

In general, s skyscraper is defined a building with over 40 floors. Hong Kong is the world’s number one city with highest number of skyscrapers. The city has 1,294 skyscrapers. New York has about half that number. NY is followed by Tokyo, Chicago and Dubai in the top five ranking.

RankCityNumber of skyscrapers
1Hong Kong1,294
2New York City690
3Tokyo415
4Chicago302
5Dubai268
6Shanghai254
7Toronto239
8Guangzhou227
9Shenzhen205
10Chongqing187

Source; Emporis

For the full list of the cities with most skyscrapers you can visit the Cities with the most skyscrapers article at Emposis site.

Here is another interesting graphic:

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Tallest Towers Built-2015

Source: America Is Still Losing at Skyscrapers, NY Mag