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Twin Shareholder-Friendly Measures Drive Up the CSX Stock


CSX Corporation’s CSX board of directors has announced a 10% dividend hike. Additionally, the company increased the existing share repurchase program to $5 billion. This move indicates the company’s commitment to create value for shareholders as well as underlines its confidence in business growth.

Post the announcement, shares of the company gained 4.5% to close the session at $53.16 on Feb 12.

The company’s board members have raised the quarterly dividend to 22 cents (annualized payout of 88 cents) per share from the previous 20 cents (annualized 80 cents). The first installment of the new dividend will be paid on Mar 15, 2018 to shareholders of record as of Mar 1. The $5-billion share repurchase program is expected to be completed by the first quarter of 2019.

We note that the new tax law (Tax Cuts and Jobs Act), which reduces corporate tax rate significantly, is a boon to transportation companies like CSX. Moreover, the provision of the law, which allows capital expenses to be deducted in the year that incurred the same, is a huge positive for these companies. As a result, we are witnessing a series of dividend hikes in the transportation space. Apart from CSX, the likes of United Parcel Service UPS and Union Pacific Corporation UNP have announced dividend increases recently.

Investors always prefer an income-generating stock and a high dividend-yielding one is obviously much coveted. It goes without saying that they are always on the lookout for companies with a track record of consistent and incremental dividend payments to put their money on. It is through share buybacks and dividend payouts that companies bolster investors’ confidence, persuading them to either buy or hold the scrip.

The company also stated that it will provide an update on its progress toward achieving 60% operating ratio (operating expense as a percentage of revenues) by 2020 at the upcoming Investor and Analyst Conference on Mar 1, 2018.

CSX has been performing well of late. Shares of the company have gained 7.6% in the last three months compared with the industry’s growth of 3.4%.

The dividend rise and addition to the existing share buyback program are likely to improve the stock further.

Zacks Rank & Another Key Pick

CSX carries a Zacks Rank #2 (Buy). Another top-ranked stock in the broader Transportation sector is Deutsche Lufthansa AG DLAKY, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Deutsche Lufthansa have skyrocketed more than 100% in a year.

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