CSX Corp Dividend Stock Analysis

CSX Corp (CSX) is the third largest railroad company in North America. The company operates 21,000 miles of network serving 23 states east of the Mississippi River including two Canadian provinces – Ontario and Quebec. CSX Corp operates in one of the widest moat industries – railroads. The company serves probably most important geographic region in North America – the eastern US, serving 2/3 of the population and over 60% of US industrial production. The company has a diversified traffic volume including intermodal, industrial, agricultural, construction and coal.

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Norfolk Southern Dividend Stock Analysis

NSC

Norfolk Southern Corp. (NSC) is a class 1 railroad company that dominates the eastern continental US and commands approximately 20,000 miles of rail network in 22 states and the District of Columbia. The company is one of the key players in the transportation industry and provides a great investment opportunity for long-term investors. Norfolk Southern is a dividend contender, having raised dividends for 14 consecutive years, with a 5-year DGR of 10.3%. The current headwinds the crude industry is facing provides a good opportunity to initiate a position in this best-in-class starting yielder.

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Union Pacific Corporation – Falling Crude Prices Might Present An Opportunity

Union Pacific Corp Union Pacific Corporation (NYSE:UNP) is the largest publicly traded railroad company in the world. The company commands over 31,000 miles and is strategically well placed to take advantage of transportation network in the western US. Crude-by-rail has been the choice of transport while the pipeline infrastructure is still being built. Over the course of last few years, crude has become one of the largest commodities transported on railroads. The current downturn in crude prices may result in capex cuts from oil companies in North America – resulting in some short-term headwinds for the railroad industry. However, railroads still remain the pulse of the economy and are excellent long-term investments.

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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

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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.