Assessing Kansas City Southern’s Stock Buyback Practices



Kansas City Southern’s shareholder returns practice

Previously in this series, we analyzed the operating expenses of the Kansas City Southern Railway Company (KSU) in the fourth quarter of 2015 and the reasons behind the decline the company experienced in that department for the quarter. In this part of our series, let’s go over KSU’s stock buyback program.

As of mid-January 2016, Kansas City Southern’s stock has fallen by 46% since the beginning of January 2015. But as we discussed previously in this series, it was the falling demand for energy-related commodities that put such pressure on the railway’s revenues.

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Why KSU is buying back stock

In the 10K it filed last year, KSU clearly stated that it doesn’t indulge in stock buybacks. However, on May 14, 2015, KSU withdrew its revenue and volume guidance and announced a stock buyback of up to $500 million. The buyback expires on June 30, 2017.

At that time, the company also reduced its capital spending target for 2015 to $650 million–$670 million. The earlier outlook was of $700 million–$720 million, and after this announcement, KSU’s share price fell by 3.7% on the same day. Perhaps this explains why, during 4Q15, KSU repurchased 0.6 million shares for $57.9 million.

What’s Kansas City Southern’s dividend practice?

KSU rewards shareholders through quarterly dividends. The company paid a quarterly dividend of $0.33 per share or $35.7 million in the fourth quarter of 2015, whereas in 4Q14, KSU only paid $0.28 per share. KSU’s current dividend yield is 2.02% compared to the following yields of those in its peer group:

  • Union Pacific Railroad Company (UNP)—3.2%
  • CSX Corporation (CSX)—3.28%
  • Norfolk Southern (NSC)—3.48%
  • Canadian Pacific Railway (CP)—0.88%
  • Canadian National Railway (CNI)—1.83%

The SPDR S&P Transportation ETF (XTN) holds nearly 9.5% in all Class I railroads.

Continue to the concluding part of this series for a look at the latest analyst recommendations for Kansas City Southern.


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