US Class I railroads’ dividend yield
Here, we’ll discuss cash distributions by major US railroads to shareholders. Usually, a railroad returns cash in the form of dividends and stock buybacks. In the last two years, most of the discussed US railroads initiated aggressive stock repurchases amid the weak freight transportation environment. Let’s take a look at the dividend distributions by these railroads in 2Q17.
In recent quarters, the forward dividend yield of major US railroads has come down due to a relative rise in railroad stocks in 2017 after a steep fall in the previous year. Dividend yield measures the amount of cash flowing to investors from every dollar invested. Looking at the above graph, it’s evident that the railroad stocks are not dividend stocks. This is mainly due to the high reinvestment rate of earnings back into the business.
Eastern US railroads’ dividends
Norfolk Southern (NSC) has paid cash dividends on its equity stock for 140 consecutive quarters since inception in 1982. NSC raised its dividend in 1Q17 to $0.61 per share. This translates into a dividend payout of 35.6%. CSX (CSX), another Eastern US rail operator, raised its equity dividend by 11.1% to $0.20 per share in 2Q17. The dividend payout ratio of the stock was 36.4%.
Other railroads’ dividends
Canadian Pacific Railway (CP) announced a 12.5% rise in quarterly dividend per share to $0.56 Canadian dollars in 2Q17. The company’s dividend yield has been the lowest in the peer group at 1.1%. Montreal-headquartered Canadian National Railway (CNI) raised its dividend by 10% to $0.41 per share in Canadian dollars. Notably, CNI has raised its dividend per share every year since its first dividend declaration in 1996.
Union Pacific (UNP) has paid dividends on its common stock for 119 consecutive years. UNP raised its dividend by 11% to $0.61 per share in 4Q16. With a forward dividend yield of 2.2%, the company tops its Class I peers. Its dividend payout ratio was 41.7% in 2Q17.
On August 15, 2017, Kansas City Southern (KSU) announced a 9% rise in its quarterly cash dividend to $0.36 per share from $0.33. This translates into a dividend payout ratio of 28.4%. Genesee and Wyoming (GWR) (GWR) maintains a policy of no dividends.
The SPDR Global Dow ETF (DGT) is a global ETF related to the Global Dow Index. This ETF has 3.6% exposure to major US airlines.
In the next part, we’ll turn to Wall Street analysts’ opinion on the major US railroads.