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3 Transportation Stocks With Dividend Growth to Keep Tabs On

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It is no secret that stocks in the transportation sector were the worst hit by the COVID-19 pandemic and related consequences in 2020. With the revenue stream dwindling, companies belonging to various corners of the sector resorted to multiple cost-cutting measures, including furloughs, layoffs and dividend cuts as they battled to fend off the liquidity crisis.

However, things have been gradually looking up for the industry players of the widely-diversified sector this year. The gradual resumption of economic activities has been a boon for the sector participants. The wide-spread vaccination programs have also provided a boost to the uptick in economic activities.

Reflecting better economic conditions, the freight scenario in the United States has become quite rosy, as can be gauged from the  latest Cass Freight Shipments Index report, according to which shipment volumes climbed 12.3% on a year-over-year basis in August. The various channels of the transportation sector like railroads and trucking companies are benefiting from the continued improvement in freight demand amid the rebounding U.S. economy. Per the American Trucking Associations’ latest report, the advanced seasonally-adjusted for-hire truck tonnage index inched up 0.5% in August from the year-ago levels.

Headwinds

The rapid spread of the highly contagious Delta variant of the coronavirus in many places across the globe, including the United States, is proving to be a huge setback and threatening to derail the economic uptick. Due to the Delta-variant induced woes, a number of airline companies like Delta Air Lines DAL and United Airlines UAL have issued bleak Delta variant-induced forecast for the September-end quarter.

Due to the Delta variant-induced supply-chain woes, shipment volumes declined 3% and 4.4% month over month in June and July, respectively. Additionally, the American Trucking Associations’ Truck Tonnage Index edged down 1.5% and 1.2%, year over year, in June and July, respectively. The disruptions caused by the hurricane Ida are also responsible for the above disappointing readings. China’s crackdown on technology companies is also a dampener as far as investors’ sentiments are concerned.

Moreover, the crisis triggered by fears over the potential collapse of a debt-ridden Evergrande Group has shaken the global stock markets. As a result of this cascading impact of the troubles in China’s property market, major indexes in the United States were dealt a huge blow. Due to the Evergrande Group-led crisis, market volatility soared with the volatility level represented by the CBOE Volatility Index (VIX), jumping 32% on Sep 20, the highest one-day rise since Feb 25, 2021.

Dividend Stocks to the Rescue?

Despite such uncertainties, investors interested in the Zacks Transportation sector should watch out for sound dividend players. Amid bouts of market volatility, nothing seems to be a better strategy than picking dividend-focused stocks. We have, thus, highlighted three such stocks that currently carry a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Dividend payers should be on the watchlist of investors as they are financially stable and mature, and can even generate steady cash flow irrespective of the market direction. The solid dividend players are unperturbed by market volatility, thanks to their sustainable business model and long track record of profitability.

Union Pacific Corporation UNP, with a market capitalization of $132.9 billion, is our first choice. With economic activities gaining pace, the overall volumes are improving. We are also pleased by the efforts of the company to promote safety and enhance productivity. Reflective of the improving conditions in the United States, Union Pacific announced a 10% hike in its quarterly dividend payout to $1.07 per share in May. Union Pacific has rewarded the company’s shareholders with dividends on its common stock for 122 consecutive years. Its current dividend yield is 2.10% higher than the industry’s 1.62%.

United Parcel Service UPS, with a market capitalization of $163.8 billion, is another solid dividend-paying transportation stock to keep tabs on. We are encouraged by UPS' solid free cash-flow generating ability. Even in this coronavirus-hit scenario, UPS generated impressive free cash flow of $5.1 billion in 2020. In February, UPS' board approved a 1% increase in its quarterly dividend to $1.02 per share. Robust free cash-flow generation by UPS is a major positive and will likely lead to an uptick in shareholder-friendly activities. The stock’s current dividend yield is 2.17% higher than its industry’s 1.84%. The company has either maintained or increased its dividend each year since going public in 1999.

Norfolk Southern Corporation NSC, with a market capitalization of $60.5 billion, is another solid dividend-paying transportation stock to keep an eye on. With economic activities steadily gathering steam, the overall volumes are improving. The company’s liquidity position is also encouraging. We are encouraged by Norfolk Southern’s solid free cash-flow generating ability. Even in this coronavirus- hit scenario, the railroad operator generated an impressive free cash flow of $2.1 billion in 2020, which was up 14% year over year. Norfolk Southern raised its dividend by 10 cents to $1.09 per share in August. The company has paid dividend for 156 consecutive quarters. The dividend hike in August marks the company’s second such dividend increase this year. Its current dividend yield is 1.78%.


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Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
 
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
 
Union Pacific Corporation (UNP) : Free Stock Analysis Report
 
Norfolk Southern Corporation (NSC) : Free Stock Analysis Report
 
United Parcel Service, Inc. (UPS) : Free Stock Analysis Report
 
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