Even though the coronavirus pandemic is still very much around, the gradual re-opening of economies resulted in an uptick in activities. This improved scenario is evident from the fact that China’s GDP grew 6.5% in the fourth quarter of 2020, according to the National Bureau of Statistics data, per a Reuters article. Additionally, real GDP in the United States increased 4% in the fourth quarter of 2020, going by the "advance" estimate provided by the Bureau of Economic Analysis.
In this write-up, we focus on the widely diversified transportation sector, which includes airlines, railroads, equipment and leasing companies among others. The steady resumption of economic events immensely benefited this space, which has been one of the worst-hit corners in the investing world during the coronavirus outbreak.
Betterment of the situation is well-reflected by the price movement. Evidently, the Zacks Transportation sector has grown 18.9% in the past six months, outperforming the S&P 500 Index’s 13.9% appreciation.
Let’s take a quick look at the factors responsible for the bullish price performance.
The availability of vaccines to combat coronavirus and the subsequent commencement of immunization programs across the globe are a great booster. With more and more people getting the jabs worldwide with each passing day, economic activity is likely to gain further momentum in the coming days.
Notably, freight activity picked up in the United States and is likely to gather much steam going forward. This bodes well for the railroads and trucking companies within the transportation sector. Per an American Trucking Associations report, truck freight volumes are expected to increase 4.9% in 2021.
Owing to this bright scenario, railroad operator Kansas City Southern KSU expects its 2021 revenues to grow in double digits from the 2020 levels. Moreover, the surge in e-commerce demand amid the current pandemic situation is a huge boon to companies like FedEx FDX and United Parcel Service UPS.
The consistent recovery in leisure air-travel demand is a positive for the airlines, which are probably hardest-hit by the pandemic in the transportation sector. The uptrend in leisure-travel demand contributed to the improvement in cash burn as confirmed by many airline companies while announcing their fourth-quarter 2020 financial numbers. Evidently, American Airlines, driven by its cost-control initiatives, succeeded in reducing its daily cash burn rate from nearly $100 million in April 2020 to approximately $30 million in the December quarter.
Recent Dividend Hikes Signal Rosier Scenario
The gradual expansion in business volumes and the government packages strengthened the balance sheets of many transportation companies, encouraging many to resort to shareholder-friendly activities like hiking their respective dividend payouts.
As investors prefer an income-generating stock, a high dividend-yielding one is much coveted. Needless to say, that they are always on the lookout for companies with a consistent and incremental dividend history.
4 Stocks to Focus on
Based on the above parameters, we present four transportation companies that announced dividend hikes recently and therefore, should be on an investor’s watch list. All the companies carry a Zacks Rank #3 (Hold), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
Norfolk Southern NSC: While announcing fourth-quarter results last month, this railroad operator’s board of directors approved a 5% hike in its quarterly dividend on the company's common stock from 94 cents to 99 cents per share. Norfolk Southern has paid a dividend on its common stock for 154 consecutive quarters since 1982. Its current dividend yield is 1.59% higher than its industry’s 1.58%.
In another shareholder-friendly announcement, the company raised its long-term dividend payout ratio target from 33% of net income to the 35-40% range. Strong free cash flow generation supports such shareholder-oriented activities.
Moreover, the company’s shares have gained more than 24% over the past six months and it is benefitting from improved efficiencies and reduced costs, courtesy of the precision scheduled railroading operating plan. Notably, the operating ratio (operating expenses as a percentage of revenues) is constantly improving mainly, owing to reduced operating expenses.
Canadian National Railway Company’s CNI board cleared a 7% increase in its quarterly dividend to C$0.615 last month during its fourth-quarter result announcement. The new dividend will be paid out on Mar 31 to its shareholders of record as of Mar 10, 2021. In fact, the current increase marks the 25th consecutive yearly hike. Its current dividend yield is 1.78% higher than its industry’s 1.58%.
The raised dividend vouches for the Canadian railroad operator’s commitment to create value for shareholders and underscores its strong financial condition.
Moreover, the stock has gained more than 4% over the past six months and is being aided by a robust performance of its Grain and Fertilizers segment. Revenues from the unit rose 19% in fourth-quarter 2020.
Last month, J.B. Hunt Transport Services’ JBHT board declared a 3.7% hike in its quarterly dividend from 27 cents per share. The new dividend of 28 cents per share (annually: $1.12) is payable Feb 19, 2021 to the shareholders of record as of Feb 5. J.B. Hunt has an impressive dividend-paying history having paid dividends for more than 25 years, consecutively. Its current dividend yield is 0.8% higher than its industry’s 0.76%.
Additionally, this trucking company’s shares have inched up more than 3% over the past six months and it is making constant efforts to expand its Final Mile network. The move is highly prudent since with the phenomenal upsurge in the online shopping space, growth in last-mile deliveries (or final mile delivery) is outpacing traditional freight. The fast-evolving nature of the last mile delivery market can be gauged from the fact that revenues at J.B. Hunt's Final Mile Services segment jumped 21.5% in 2020 on a year-over-year basis.
Last month, the board of directors of GATX Corporation GATX approved a 4.2% increase in its quarterly dividend from 48 cents per share to 50 cents. The new dividend is payable Mar 31, 2021 to the shareholders of record on Feb 26, 2021. Notably, 2021 marks the 103rd consecutive year of GATX paying a dividend. Its current dividend yield is 2.07% higher than its industry’s 1.43%.
Moreover, this lessor of transportation assets, shares of which have surged 52% over the past six months, is looking to strengthen its railcar leasing operations. To this end, GATX purchased the world’s fourth-largest tank container lessor company Trifleet Leasing Holding late last year.
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Canadian National Railway Company (CNI) : Free Stock Analysis Report
Kansas City Southern (KSU) : Free Stock Analysis Report
United Parcel Service, Inc. (UPS) : Free Stock Analysis Report
Norfolk Southern Corporation (NSC) : Free Stock Analysis Report
GATX Corporation (GATX) : Free Stock Analysis Report
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