uploads/2016/02/KSU-SharePrice1.png

An Analysis of Kansas City Southern’s Stock Returns

By

Updated

Market capitalization

Kansas City Southern’s (KSU) ordinary shares trade on the NYSE. As of February 11, 2016, its market capitalization stood at $8.38 billion and it had a stock price of $77.54.

Article continues below advertisement

Kansas City Southern’s stock returns

Kansas City Southern did not perform well in the markets in 2015. It did not attract investors as the stock yielded returns of around -38% as of December 31, 2015. Its close competitor Union Pacific (UNP) also lost a whopping 34%. KSU’s peers Norfolk Southern (NSC) and CSX Corporation (CSX) also witnessed a value erosion of 22.4% and 27.6%, respectively.

However, 2016 has not been much better for railroad stocks. As of February 11, 2016, KSU has gained marginally around 3.84% YTD (year-to-date), and UNP and NSC have lost 3.04% and 15.27%, respectively.

Share repurchases and dividends

In the wake of soft railroad industry fundamentals, the company withdrew its 2015 earnings and volume guidance in May 2015. On the same day, it announced a stock buyback of up to $500 million. The buyback expires on June 30, 2017. This explains why, during 4Q15, KSU repurchased 0.6 million shares for $57.9 million.

KSU paid a dividend of $0.25 per share in April 2007, before the world’s financial markets could sense the upcoming economic tsunami. The company was able to bring back the same dividend per share in June 2011. KSU paid a quarterly dividend of $0.33 per share ($35.7 million) in the last quarter of 2015, up by 18% from $0.28 per share in the same period in 2014.

Article continues below advertisement

As of September 30, 2015, $45.9 million in cash held outside the US in foreign subsidiaries was included in its total cash of $116.6 million. Cash held by foreign subsidiaries was not freely available to pay dividends due to regulatory hurdles. Hence, KSU doesn’t have a rich dividend growth history.

Peer group dividends

The company’s dividend yield of 1.74% is noticeably lower than rival Union Pacific’s (UNP) yield of 2.93%. Among the peer group, CSX Corporation’s (CSX) dividend yield stands at 3.15%. CSX’s arch rival Norfolk Southern (NSC) has a dividend yield of 3.36% to the investors. NSC’s dividend yield is the highest among all Class I railroads.

The iShares Transportation Average ETF (IYT) holds slightly more than 20% in railroads.

Advertisement

More From Market Realist