Dividend Comparison – Railroads

The railroads industry is considered a harbinger of the economic boom or bust. Economists always keep a close eye on the railroads industry to give an indication of how the overall economy is doing and where it is going next. And rightly so, most of our goods are transported by the railroads.

 

Some negatives about the industry: While railroads can be a great measure of the economy, there are also a lot of hurdles to the industry.
  • Railroads face constant government regulations.
  • Railroads are heavily unionized and face a large portion of the workforce retiring in the next decade which adds more stress to the financials such as pensions and healthcare obligations etc.
  • Railroads face constant threat from industries such as shipping, trucking businesses, pipelines etc.
  • Railroads face accidents sometimes resulting in a community backlash – pushing people and government more towards using pipelines for oil transportation.
  • Nearly 50% of the North American railroad transport carries coal – a commodity under constant pressure from the environmentally conscious community.
That being said, the railroads may still provide an interesting exposure for a diversified portfolio. The companies covered here have a market cap of $2B+ and positive yield.
Company Name Ticker Quote P/E Yield Payout
Ratio
5-yr
DGR
Operating
Margin
Canadian National CNI $100.44 17.44 1.65% 28.3% 12.92% 36.7%
Canadian Pacific CP $125.32 31.89 1.06% 34.5% 8.08% 26.9%
CSX Inc CSX $26.05 14.16 2.30% 31% 22.10% 29.6%
Guangshen Railway GSH $23.17 15.66 2.46% 29.9% -0.73% 12.3%
Kansis City Southern KSU $110.06 40.32 0.78% 13.8% 28.7%
Norfolk Southern Inc NSC $75.50 13.93 2.65% 36.6% 11.73% 27.20%
Trinity Industries Inc TRN $40.31 11.86 1.29% 8.8% 9.67% 14.9%
Union Pacific Corp UNP $163.37 18.59 1.69% 30.2% 26.17% 32.90%
Westinghouse Air Brake WAB $59.15 21.13 0.27% 3.5% 37.97% 16.90%

My Thoughts

I am still not convinced that railroads are a great investment. While the railroad corporations are aggressive dividend growers, the industry is under pressure from the public. When considering transportation of commodities such as oil, I think pipelines are a better option and where we will constantly turn towards in the future. A recent derailment and explosion in Lac Megantic, Quebec has again put the railroads under the pressure calling for better safety measures and move towards a pipeline model for transporting oil.
Since 50% of the transport by rail in North America is coal, again we face a lot of pressure from the public. With increased power generation coming from renewable energy sources (solar, wind) or with other cheap alternatives (natural gas), the industry faces more hurdles.

Disclosure: None

Photo Credit: John H Kibbler/freedigitalphotos.net

Disclaimer: The information provided here is for educational purposes only. All opinions here are my personal opinions and should not be taken as financial advice. I am not qualified to be a financial advisor. Always consult with your financial advisor before investing in any of the companies mentioned on this blog.

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