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Should Dividend Investors Look at Major US Railroads?

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Major US railroads

In recent years, major US railroads have initiated stock buyback programs to return cash to shareowners. The buyback programs have resulted in lower dividend payouts and thus a low dividend yield for investors. In this article, we’ll go through these railroads’ dividend yield and stock buybacks in 3Q16.

Dividend yield measures the amount of cash flowing to investors from every dollar invested. A railroad that consistently pays out dividends may be valued more highly, as it attracts income investors. High-dividend-yield stocks can be a good source of income for investors, but this income usually comes at the cost of growth.

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Eastern US railroads’ dividend payments

Since its inception in 1982, Norfolk Southern (NSC) has paid dividends on its common stock for 137 consecutive quarters. It paid a 3Q16 dividend of $0.59 per share. This translates into a dividend payout of 44%. Major Eastern US carrier CSX (CSX) declared a dividend of $0.18 per share in 3Q16. In the last three years, the company’s average dividend per share growth rate was 9%.

Canadian railroads’ per share dividends

Canadian Pacific Railway (CP) declared a dividend per share of 0.50 Canadian dollars on August 28, 2016. Though the company’s dividend didn’t grow in 3Q16 sequentially, it was up 42.8% since the levels in 1Q16. Canadian National Railway (CNI) announced a dividend of 0.375 Canadian dollars on October 25, 2016. The company’s average dividends per share growth rate during the last three years was 18.6%, the second highest in its peer group.

Dominant Western US carrier Union Pacific (UNP) has paid dividends on its common stock for 118 consecutive years. The company declared a dividend of $0.55 per share in 3Q16. During the last three years, its average dividend per share growth rate was 20.9%, the highest among major railroads.

On November 11, 2016, the smallest Class I railroad, Kansas City Southern (KSU), declared a quarterly dividend of $0.33 per share. The company’s average dividend per share growth rate was 19.2% in the last three years, the second highest in the peer group.

Genesee and Wyoming (GWR), the largest short-line operator in the US, doesn’t pay dividends, since the company aggressively engages in acquiring strategic fit railroads.

ETF investment

The SPDR Global Dow ETF (DGT) is a global ETF related to the Global Dow Index. All major US airlines make up 2.1% of DGT.

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