If Pensions are becoming passe so where is new money going to come from to invest in railroads and industry

Trains Magazine General Discussion
21

Paul:

Have you ever visited the bogelhead.com forum? It is dedicated to the principals of John Bogel, the founder of Vanguard. Quite a group of passionate passive investors. I straddle the fence, using Vanguard for bond funds, due to their very low costs and also use some index funds, but stray from the reservation with my individual stock holdings.

We all get along pretty well for the most part.

Railroads have no problem in attracting necessary capital. Most rails have a capital structure of about 40% debt/ 60% equity. Most of the equity is in the form of retained earnings. As Paul indicated the debt paper of the railroads these days is quite popular.

In fact the railroads are generating so much free cash flow these days that they are not only using about 20% of revenue for investment purposes, but also are returning considerable amounts back to the investors. Consider the following for CN:

2014 revenues - $11.6 B

Reinvestment - $ 2.138B - this is primarily in form of added equipment, replacement of track, etc.

Dividends - $.795 B ($795 million returned to shareholders)

Stock repurchased - $1.4B (reduced the total number of shares by 17 million during 2014.

Simple math indicates that if CN really need more cash for investing purposes then another $2.1B would be available by suspending dividends and share buybacks. Realistically, it would be difficult to eliminate the dividends, as the equity market would react negetively, but the $1.4B would be readily available.

So, when one reads on this forum that railroads need cash for capacity issues, one must simply follow the money and realize they are choosing to allocate only a portion of their cash to their business and returning a similar amount to the owners.

Paul, if you havent done so…checkout the bogelheads forum.

Well worth it.

22

Just wait until all those people with self managed retirement savings retire.

It will be an eye opener.

23

Phoebe:

You are correct…many people have not planned adequately. Social Security is in place for a percentage of earnings.

Pension plans had flaws, but if a person did stay with one company for 20 years there was a pension payout. The days of cradle to grave employment are long gone tho.

Ed

24

We are fortunate to be railfans… if you did nothing else but invest in rail stock 20 years ago then your investment has outperformed the market by a wide margin, and there’s no sign the party is over yet.

25

I am stunned by the returns of CN (Illinois Central prior to merger) in the 20 years it has been held. I am also stunned at how quickly that time has passed.

Ed

26

Breakfast of champions!

27

Sounds like a recipe for seriously bad gas…

28

That was the standard accompaniment sixty and more years ago. It’s been a while since I saw an RC Cola; perhaps I live in the wrong area of the country now.

For the benefit of any of you who never saw or drank an RC Cola, the full name is Royal Crown Cola.

29

The last time I saw RC cola was in vending machines in western Wisconsin.

30

The monkeys would probably do as well with either author, though we might have to interpret some of their words.

31

Champion Moon Pie eaters? or RC Cola swiggers?

32

How far back was that? Maybe I will remember to look for the beverage next month, when I am in the land where people know the right way to talk.

33

Having the excellent taste to appreciate the finer things in life, like RC Cola and Moon Pies, makes one a champion-type person.

34

Just don’t stand too close to an open flame…

35

Yikes! It may have been a while. The bottles were glass, and the machine didn’t take dollar bills. [:O]

36

We can get RC here in the upper reaches of NY state. I like it. Used to drink a fair amount whilst at USAF tech school at Chanute AFB.

37

OH, I’m not so sure. Some of us having “self managed retirement savings” might just surprise you with our uncanny ability to actually take care of ourselves like free, independent adults. I’ll start to find out in about 21 months and 18 days (but who’s counting?) I’ll let you know.

Yes, I will participate in Medicare and Social Security. It’s not as if I was given much of a choice.

38

You cannot apply YOUR success across the board.

A person working in retail, houskeeping, or any other job that pays less than $20K cannot possibly put away enough money to support themselves in retirement.

I personally know a person who wiped her 401K out when she had a medical emergency. I know two other people who withdrew all of theirs to avoid bankruptcy after their job evaporated in the big recession.

A HUGE portion of the population will not have enough to sustain them more than a couple of years.

39

I don’t know that you can apply the lack of success(?) of some of the folks you know of accross the board either. How would their situations turned out differently if they didn’t have self managed retirement savings?

40

Exactly right. If Social Security is so great, why do people still even bother to put money away elsewhere for their old age?

Because some people have a less-than-prosperous retirement is a poor reason to foresee (wish?) bad luck for everybody else.