It is a well-known fact that expenses associated with oil are considered to be one of the major input costs for any transportation company. Therefore, the recent upsurge in fuel costs does not augur well for stocks in the space.
So far this year, oil prices have increased roughly 10% and are currently trading at around $66 a barrel. Various reasons like the geopolitical tensions in the Middle East contributed to the rise in oil price. In fact, this marks a phenomenal turnaround for the commodity, which was trading at around $30 a barrel in 2016.
Transports Feeling the Pinch
With fuel costs on the rise, it is natural that transportation stocks would be hit hard. This is because an upsurge in oil prices induces significant increase in operating expenses of transports, thus limiting bottom-line growth.
In fact, the first-quarter earnings season witnessed many stocks in the space suffering due to rise in fuel costs. Notably, oil prices were up approximately 8% in the January-March period. This uptrend continued in the April-June period as well.
Highlighting its struggles, the Zacks Transportation Sector is currently ranked 14th among the 16 Zacks Classified sectors.The unfavorable rank places the sector in the bottom 13% of the Zacks sectors.
Turbulence Likely to Continue in Q2
The fact that high fuel costs will restrict bottom-line growth of transports in the second quarter can be made out from our latest Earnings Preview. Even though, the top and bottom line of S&P 500 companies in the Transportation sector are projected to grow year over year to the tune of 7.6% and 12.3%, respectively, the figures compare unfavorably to the readings in the first quarter. Revenues and earnings had displayed growth of 9% and 21.3% for transports in the January-March period.
Key transportation players like American Airlines Group Inc (NASDAQ:AAL) and Delta Air Lines, Inc. (NYSE:DAL) expect second-quarter results to be affected by high fuel costs. Currently, Delta envisions second-quarter fuel costs per gallon between $2.20 and $2.25 compared with $2.07 and $2.12 projected earlier.
This airline behemoth has also slashed its earnings per share guidance for the soon-to-be reported quarter due to the cost headwind. The bottom line is now anticipated in the range of $1.65-$1.75, lower than the prior estimate between $1.80 and $2.
Apart from high fuel costs, expenses on the labor front are expected to weigh on transportation stocks’ bottom-line performancein the second quarter.
Sector Lags on the Price Front
The turbulence in the space can be gauged from the fact that the Zacks Transportation Sector has underperformed the S&P 500 on a year-to-date basis. While the sector has shed 1% of its value, the Zacks S&P 500 Composite has increased 3.9%.
YTD Price Performance
Adding Shareholder Value — The Road Ahead
In view of the turbulence plaguing transports, we believe that it would be prudent for investors interested in the space to invest in companies that not only pay consistent dividends but also raise the same. This is because such companies are financially stable and mature and can also generate steady cash flow irrespective of market conditions.
Moreover, the new tax law (Tax Cuts and Jobs Act), which came into force late last year, is a boon for transports as far as shareholder-friendly activities like dividend payments are concerned. The significant reduction in corporate tax rate, under the new law, has boosted cash flow as well as earnings of transportation stocks.
Due to the significant reduction in tax bills, more cash remains in the hands of these companies to fund capital expenditures, buybacks and dividends among others.
Dividend Paying Transports — A Prudent Choice
Given the backdrop, targeting dividend-paying transportation stocks and combining them with a favorable Zacks Rank is a judicious way to increase the chances of beating the market besides ensuring a steady stream of cash heading to your portfolio.
In this regard, we have zeroed in on four transportation stocks, which have raised their dividend payouts this year. All the chosen stocks carry a Zacks Rank #2 (Buy). Year to date, these stocks have also outperformed the sector on the price front.
Transportation Picks to Reward You With Handsome Dividends: FedEx Corporation (FDX)
FedEx Corporation (NYSE:FDX) offers customers a one-stop source for global shipping, logistics and supply chain solutions. This Zacks Rank #2 company has a market capitalization of $70.43 billion.
In June 2018, FedEx’s board of directors cleared a 30% hike in its quarterly dividend to 65 cents a share (or $2.60 annually) from 50 cents (or $2 annually). The new dividend will be paid on Jul 9, 2018 to stockholders of record as of Jun 25. The stock has gained 5.6% on a year-to-date basis.
The raised dividend highlights FedEx’s commitment toward creating value for shareholders and underscores the company’s strong financial condition and bright prospects going ahead. Also, it has an impressive record with respect to dividend payments.
Transportation Picks to Reward You With Handsome Dividends: Expeditors International of Washington (EXPD)
Expeditors International of Washington (NASDAQ:EXPD) is a leading third-party logistics provider. In May, Expeditors’ board of directors approved a 7.1% hike in semi-annual cash dividend to 45 cents per share (annualized 90 cents per share).
This Zacks Rank #1 company has a market capitalization of $13.51 billion. The stock has gained 18.7% on a year-to-date basis.
Transportation Picks to Reward You With Handsome Dividends: GATX Corporation (GATX)
GATX Corporation (NYSE:GATX) is a leading global railcar lessor that specializes in railcar and locomotive operating leasing, aircraft operating leasing, information technology leasing, and venture finance for customers in diverse industrial sectors worldwide.
On Jan 26, 2018, the company’s board of directors cleared a 5% hike in its quarterly dividend to 44 cents per share ($1.76 annually). Also, this Zacks Rank #2 company has an impressive record with respect to dividend payments.
It has been paying dividends regularly since 1919. GATX has a market capitalization of $2.64 billion. The stock has gained 15.7% so far this year.
Transportation Picks to Reward You With Handsome Dividends: SkyWest, Inc. (SKYW)
Finally, SkyWest, Inc. (NASDAQ:SKYW) is a regional carrier operating in the United States. In February, the company’s board of directors cleared a 25% hike in its quarterly dividend to 10 cents a share (or 40 cents annually) from 8 cents (or 32 cents annually).
This Zacks Rank #2 company, with a market capitalization of $2.88 billion, has an impressive record with respect to dividend payments. The stock has gained 5.9% so far this year.
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