A Review of MTR Corporation, Hong Kong’s Railway Operator

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The MTR Corporation(MTRJY) is the leading railway operator in Hong Kong carrying an average of 4 million passengers every weekday. MTR’s rail network consists of nine railway lines serving Hong Kong Island, Kowloon and the New Territories. The company also runs a Light Rail network serving the local communities of Tuen Mun and Yuen Long in the New Territories.

In addition, MTR also operates the Airport Express, a dedicated high-speed link providing the fastest connections to Hong Kong International Airport and the city’s newest exhibition and conference centre, AsiaWorld-Expo. From Hong Kong MTR  provides convenient services to Guangdong Province, Beijing and Shanghai in mainland China.

Some of the other areas where MTR has interests include the development of residential and commercial projects, property leasing and management, advertising, telecommunication services and international consultancy services. Internationally the corporation is involved in the building and operations of the Beijing Metro Line 4 and Shenzhen Metro Line 4 and in the operating of the London Overground system in the United Kingdom, the Melbourne Train System in Australia and Stockholm Metro in Sweden.

MTR’s shares trade on the OTC market in the US through the Level 1 program with the ticker MTRJY. The ADR to ordinary shares ratio is 1:10. While the ordinary shares outstanding is about 5.7 billion, the majority is owned by the government Hong Kong which owns 76.7% of the shares. MTR has paid a dividend every year since going public in October 2000. The ADR closed at $32.76 yesterday and has a dividend yield of 2.73%.

For more information please visit MTR’s investor relations site.

Disclosure: No positions

Genealogy of Major U.S. Refining Companies

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The average retail gasoline price in the U.S. is around $3.50 per gallon this week. After reaching over $4.00 in 2008 prices dipped for a few months. From early 2009 prices have continued to increase steadily despite the recession. This is because the demand for gas is generally inelastic as most people have to buy gas no matter the price at the pump due to the lack of public transportation.

Among the multitude of reasons for the steady increase in gas prices over the year, one factor that is rarely discussed is the oil refining industry is not competitive. From an article in the Public Citizen Foundation:

The largest five oil refiners in the United States (ExxonMobil, ConocoPhillips, BP, Valero and Royal Dutch Shell) now control over half (56.3%) of domestic oil refinery capacity; the top ten refiners control 83%. Only ten years ago, these top five oil companies only controlled about one-third (34.5%) of domestic refinery capacity; the top ten controlled 55.6%. This dramatic increase in the control of just the top five companies makes it easier for oil companies to manipulate gasoline supplies by intentionally withholding supplies in order to drive up prices.

The following charts show the evolution of the major refiners:

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Source: Genealogy of Major U.S. Refiners, EIA

Related companies:

ExxonMobil (XOM)
ConocoPhillips (COP)
BP (BP)
Valero Energy Corp (VLO)
Royal Dutch Shell (RDS.A, RDS.B)

Disclosure: No positions

Monopoly Madness in the U.S. Railroad Industry

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The freight railroad industry in the U.S. is highly concentrated with a handful of full of firms dominating the market. With the passage of the Staggers Rail Act of 1980 which deregulated the industry and sparked an era of mergers and acquisitions, the number of Class I railroads dramatically shrank from over 30 to just four. Contrary to the teachings of the free-market capitalism, U.S. Federal regulators and politicians seem to believe in the “four is few and six is many” phrase with respect to one of the main modes of freight transportation in the country.

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

The five Class I US-based freight railroads operating in the country are:

  1. BNSF Railway
  2. CSX Transportation (CSX)
  3. Norfolk Southern Railway (NSC)
  4. Kansas City Southern Railway (KSU)
  5. Union Pacific Railroad (UNP)

Kansas City Southern Railway (KSU) is the smallest of the Class I railroads and operates in ten central U.S. states and Mexico with about 6000 miles of track under its control.

Update (5/29/22): Kansas City Southern was bought out by Canadian Pacific (CP) in Dec, 2021.

The railroad industry can be considered as a oligopoly and for many captive shippers it is actually a monopoly since they are serviced by only one railroad. For example, two-thirds of coal shipped by rail is captive to a single railroad. With over 90% of rail traffic shared among the four rail carriers and healthy competition mostly eliminated, railroads enjoy enormous pricing power.

From an investment standpoint, U.S. railroads offer an excellent opportunity for long-term investment. Among the five US-based Class I railroads, BNSF Railway is privately owned as Warren Buffet’s Berkshire Hathaway bought the company in 2009.

The following chart shows 5-year return of the other three railroads as of May 29, 2022:

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Source: Yahoo Finance

Disclosure: Long NSC, UNP and CSX

Update (5/29/22):

1.The Largest US Railroad Companies:

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Source: How America’s Supply Chains Got Railroaded, The American Prospect

2. The 5 Biggest Railroads in North America:

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Source: SoundingMaps.com

3. US Railroad lines by Ownership:

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Source: Unknown

Five NYSE-Listed Latin American Stocks Yielding More Than 5% Dividends

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Some investors have the misconception that one should invest in emerging stocks mainly for capital appreciation. However that need not be the case. Many emerging market stocks pay above average dividends and hence they are attractive for both capital growth and dividend income.

According to FT market data, the S&P 500 has a dividend yield of 2.6% as of Jan 4, 2012. Some emerging Latin American markets have higher yields as noted below:

Argentina = 6.9%
Colombia = 3.1%
Peru = 5.1%
Brazil = 4.1%
Chile = 2.8%

Five Latin American ADRs currently paying more than 5% dividends are listed below for further research:

1.Company:Administradora de Fondos de Pensiones Provida SA (PVD)
Current Dividend Yield: 9.64%
Sector: Investment Services
Country: Chile

2.Company: Cpfl Energia SA (CPL)
Current Dividend Yield: 5.25%
Sector: Electric Utilities
Country: Brazil

3.Company:YPF Sociedad Anonima (YPF)
Current Dividend Yield: 9.15%
Sector: Integrated Oil & Gas
Country: Argentina

4.Company: Telefonos de Mexico SAB de CV (TMX)
Current Dividend Yield: 5.62%
Sector: Telecom
Country: Mexico

5.Company:Telefonica Brasil SA (VIV)
Current Dividend Yield: 13.33%
Sector: Telecom
Country: Brazil

Note: Dividend yields noted are as of Jan 9, 2012.

Disclosure: No Positions

Why Bonds Are Important in a Portfolio

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A well diversified portfolio should hold many types of asset classes such as stocks, bonds, real estate, gold, bank deposits, etc. Bonds are particularly important to a portfolio that is heavy in stocks. This is because bonds can help smoothen the portfolio performance when stocks become extremely volatile or perform poorly in year.

The chart below shows the performance of the S&P 500 and Treasury and Corporate bonds from 2000 thru 2010:

Source:  Seeking shelter? Consider bonds, Fidelity Investments

The low correlation between stocks and bonds is evident in the above chart.

The importance of holding bonds are highlighted by the following facts. In 2008, while the S&P 500 fell 37% treasury bonds gained about 14% as investors sought shelter in the government bonds. Similarly in the past five years before 2011, the S&P 500 had a positive return of less than 1% whereas the average taxable bond fund yielded a 4% return during the same period.

Related ETFs:

SPDR S&P 500 Fund (SPY)
iShares Lehman Aggregate Fund (AGG)
iShares Barclays 10-20 Year Treasury Bond Fund (TLH)

Disclosure: No Positions