China's Guangshen Railway (NYSE: GSH) reported its 2011 results earlier this week, and this choo-choo is really pulling its weight. Revenue climbed the grade nearly 9% higher than 2010 while expenses crawled up by about 7%. Revenues growing faster than expenses pulled over 20% more earnings into the station than the previous year. Across the board, the railroad experienced higher passenger traffic, freight traffic, and network usage.

Earnings of 0.25 renminbi per A or H share translates to a little more than $2 per American depositary share traded in the U.S. The company trades in three markets: "A" shares in Shanghai, "H" shares in Hong Kong, and ADS in the U.S. with each ADS representing 50 H shares. Even better news to this dividend hound, the planned annual dividend payment is an 11% increase over the 2010 payout, rising to about $0.79 per ADS for a yield just north of 4%.

Revenue growth, earnings growth, and a dividend hike all sound great, but how does Guangshen stack up against some other railroads?


P/E Ratio (TTM)

Dividend Yield

Guangshen 9.9 4.1%
Union Pacific (NYSE: UNP) 16.1 2.2%
Canadian National (NYSE: CNI) 13.3 1.8%
CSX (NYSE: CSX) 10.2 2.2%
Norfolk Southern (NYSE: NSC) 10.1 2.8%

Source: Yahoo! Finance and author's calculation. TTM = trailing 12 months.

Guangshen not only offers the lowest P/E ratio and highest dividend yield, but even reduced Chinese economic growth targets of 7.5% are much higher than the low single-digit growth in the U.S. and Canadian economies. The faster-growing economy should translate to faster business growth for Guangshen compared to U.S. and Canadian railroads.

Guangshen's discount valuation doesn't come without trade-offs. Risks that aren't part of owning the U.S. or Canadian rails include:

  • The largest shareholder is a government company, and those interests may not align with other shareholders.
  • Pricing, speeds, routes, and other business operations are regulated or controlled by the Chinese government.
  • Guangshen operates with a currency, the renminbi, with a controlled exchange rate.

Even with those risks, Guangshen's valuation, dividend yield, and exposure to one of the world's fastest growing economies are enough to earn it a CAPScall on my scorecard and a place in my portfolio.