CSX Dividend Diplomats Games NSC UNP

Dividend Stock Analysis: CSX – CSX Corporation (NYSE:CSX)

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Immediately’s dividend inventory evaluation will concentrate on an organization in an business that was the face of Western Enlargement in the USA within the 19th Century. Whereas modes of transportation have advanced over time, railroads are nonetheless a staple and an enormous technique of transportation for items throughout the nation. One of many largest railroad within the corporations, CSX Corporation (NYSE:CSX), has an enormous service station that I cross on my method to work daily. So I assumed it might be a good time to carry out a dividend inventory evaluation over the corporate to find out if the corporate is at present thought-about undervalued in comparison with the market and their friends. Sadly, whereas CSX is buying and selling at a slight low cost in comparison with the market, they don’t seem to be buying and selling at a reduction in comparison with friends. Let’s dive into the small print by performing a dividend inventory evaluation.

Earlier within the month, CSX launched their third quarter outcomes. On this earnings launch, CSX introduced a 14% progress in income in comparison with the prior yr and a 2% lower in bills for the three months ended September 30, 2018. Naturally, growing the highest cash coming in and decreasing the cash leaving the corporate will result in progress in internet revenue. Couple that with a discount within the federal tax fee from 35% to 21%, it is not a shock that the corporate’s quarterly EPS elevated 106% in comparison with the prior yr. Within the firm’s earnings presentation, administration cited elevated quantity/charges for transportation providers and price effectivity measures as two of the primary drivers for the earnings progress in the course of the interval. Administration did cite that there have been elevated gasoline prices through the quarter as properly and will probably be fascinating to see if the corporate’s gasoline prices proceed to rise by means of the remainder of the fiscal yr. However after reviewing the working outcomes of the corporate, there have been a number of issues to love with the corporate. It’s straightforward to know why CSX’s inventory worth has elevated over 25% yr-to-date.

Lastly, earlier than performing a deeper evaluation over the corporate, I needed to evaluate the corporate’s dividend announcement from earlier within the yr. In February, the corporate introduced a 10% improve of their quarterly dividend (from $.20/share to $.22/share) and a $5b share repurchase program. Utilizing the corporate’s 10/31/18 share worth of $68.86/share, the corporate might repurchase about 72.6m share excellent. Of their 9/30/18 Type 10-Q, the corporate introduced the corporate had 844,420,361 shares of widespread inventory excellent on the time of the submitting. So in principle, if the corporate repurchased the utmost variety of shares approved underneath this announcement, the corporate might scale back their excellent shares by eight.6%. That’s a number of shares!

Dividend Diplomats’ Dividend Stock Screener – CSX

Now it’s time to transfer on to the enjoyable half. It’s time to run CSX via the Dividend Diplomats’ Stock Screener to see if the corporate presently passes our funding filters used to determine undervalued dividend progress shares. Our inventory screener makes use of three easy screens to determine the shares: P/E ratio (valuation), dividend payout ratio (capacity to proceed rising their dividend), and their dividend progress price/historical past of accelerating their dividend (as we give attention to corporations which have demonstrated their means to extend their dividend over an extended time period). If an organization passes our screener and some different metrics, we’ll think about buying. For comparability’s sake, I’ll examine the outcomes of CSX to 2 rivals: Union-Pacific Corporation (NYSE:UNP) and Norfolk-Southern Corporation (NYSE:NSC).

TickerWorth – 10/31/18Ahead EPSAnnual DividendYieldPayout Ratio5 Yr DGRP/E Ratio
CSX$68.86$three.82$zero.881.28%23.04%eight.23%18.03
UNP$146.22$7.85$three.202.19%40.76%15.71%18.63
NSC$167.83$9.27$three.201.91%34.52%7.07%18.10

**Sources: Pricing info, ahead EPS, and annual dividend have been obtained from Yahoo! Finance. The 5-yr common dividend progress price was obtained from Dividend Investing | Greatest Dividend Paying Shares. The remaining figures within the desk above have been calculated by the writer.

1) Dividend Yield – Sometimes, I look to spend money on corporations with dividend yields exceeding the S&P 500 yield of slightly below 2%. In any other case, I might think about investing in a pleasant, diversified S&P 500 mutual fund, or ETF. Presently, CSX’s dividend yield is considerably under the broader market. On prime of it, CSX’s dividend yield is nicely under the corporate’s rivals. I knew the railroad business had decrease dividend yields; nevertheless, I used to be not anticipated CSX’s dividend yield to be this a lot decrease than UNP and NSC.

2) Payout Ratio – We sometimes use a 60% threshold when reviewing an organization’s payout ratio, as we consider this proportion level permits an organization to proceed to develop their dividend going ahead with out sacrificing the security of their dividend. The desk above exhibits that CSX’s dividend payout ratio is just 23%, approach under our threshold and their rivals. This is not very surprising given the outcomes of the earlier metric. Thus, CSX passes this screener.

three) Dividend Historical past and Dividend Progress Fee – As dividend buyers, we search for corporations which have demonstrated their potential to extend their dividend for an prolonged time period. CSX introduced a big 10% improve within the firm’s quarterly dividend February (as mentioned earlier within the article). Who would not like receiving that type of a dividend improve? Actually, the corporate’s 5-yr common dividend progress fee of eight.23% could be very strong. The query now turns to what number of consecutive years has CSX elevated their dividend. That is the place the image turns south. CSX DID NOT improve their dividend in 2016. Presently, they’ve solely elevated their dividend for 2 consecutive years. I can’t say that CSX passes this metric.

four) P/E Ratio – The ultimate metric of our inventory screener focuses on the present valuation of the corporate. I am all the time on the lookout for corporations which are buying and selling at a a number of under the broader market. At present, the broader market has a historic P/E ratio within the mid-20X and a ahead P/E ratio between 17X and 18X (per The Wall Road Journal). Per our calculations, CSX’s P/E ratio is 18.03X, indicating the corporate is buying and selling proper consistent with the broader market’s ahead P/E ratio. Additional, CSX’s P/E ratio is true according to UNP and NSC. CSX just isn’t buying and selling at a reduction to the market or their friends. As soon as once more, CSX doesn’t cross this metric in our inventory screener.

Abstract

CSX is a superb firm and their final quarterly earnings launch highlights the corporate’s robust efficiency. Nevertheless, the needs of our Dividend Stock Screener is to determine probably undervalued dividend progress shares to spend money on. Since CSX didn’t cross two of the three metrics of our inventory screener and the very fact their dividend yield is decrease than the broader market and competitors, I’ll move on investing in CSX in the intervening time. As an alternative, I’ll focus my consideration on discovering different shares to spend money on!

What are your ideas on my evaluation? Do you agree with my conclusion that CSX shouldn’t be undervalued in the mean time? Are you trying to spend money on CSX, UNP, or NSC?

Disclosure: I/we have now no positions in any shares talked about, and no plans to provoke any positions inside the subsequent 72 hours.

I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (aside from from Looking for Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.

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