In this part, we’ll look at CSX’s (CSX) quarterly dividend. On October 5, 2017, the company announced a dividend of $0.20 per share on its common stock. The quarterly dividend is payable on December 15, 2017, to shareowners at the close of business on November 30, 2017. The dividend of $0.20 per share results in a total of $183.0 million for the third quarter of 2017 for CSX.
CSX’s dividend payout ratio was around 40% based on its 2016 EPS of $2.3 per share. In the last five years ending 2016, CSX’s dividend growth rate was 12.8%. On an annual basis, in fiscal 2017, the company raised its dividend by 8.3%.
Do free cash flows support dividends?
Free cash flows (or FCF) are vital for any company in order to redistribute cash to shareholders. CSX’s operating cash flows have fallen in the last five years. In 2016, operating cash flows were at $3.0 billion. This has, in turn, affected its free cash flows. The FCF fell from $1.2 billion in 2011 to $643.0 million in fiscal 2016. CSX shelled out around $680.0 million in cash dividend payments in the last financial year.
The company has also reduced its capital expenditure in 2017 by $300.0 million in the current year. However, given the company announced it will buy back an additional $500.0 million worth of shares, it’s possible the company won’t raise dividends in the coming year. CSX’s pure FCF levels don’t support the additional rise in dividends or stock buybacks.
Peer group dividend growth
Dividend growth is often associated a company’s health. The railroad (XLI) industry is a capital-intensive industry. Thus, the reinvestment rate is much higher than in other industries. In 2017, CSX rival Norfolk Southern (NSC) raised dividends by 3.4%. Western US rail carrier, Union Pacific (UNP) increased dividends by 7.3% in the same year. Kansas City Southern (KSU) hasn’t increased yearly dividends for two straight years. Next, we’ll consider analysts’ views on CSX and peers ahead of 3Q17 earnings.