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Kansas City Southern Rides on Dividend Hike: Time to Buy?

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On Aug 24, Kansas City Southern (KSU - Free Report) was upgraded to a Zacks Rank #2 (Buy) from a Zacks Rank #3 (Hold).

Reasons for the Upswing

Kansas City Southern has been thriving of late on multiple tailwinds. Shares of the company have gained 8.8%, significantly outperforming the industry’s 3.4% decline, in the last three months.



The company’s efforts to reward shareholders through dividend payments and buybacks are impressive. To realize this initiative, the board of directors has approved of a new share repurchase program worth $800 million in August. The share repurchase plan replaces the company’s previously announced $500 million program in 2015, completed in the second quarter of 2017. The authorization also includes a $200 million Accelerated Share Repurchase program.

Simultaneously, the company increased the quarterly dividend in excess of 9%. Additionally, the directors also announced a regular dividend of 25 cents per share on 4% of Kansas City Southern’s outstanding non-cumulative preferred stock. 

The company performed laudably in the second quarter, reporting better-than-expected earnings per share and revenues. Both metrics also improved on a year-over-year basis. The results were aided by a 6% rise in overall carload volumes.

In the reported quarter, operating income increased 9% to $239 million. This significant expansion in utility coal volumes boosted the Energy segment’s results, a chief growth driver behind the stock’s outperformance. Apart from the energy segment, revenues at the company’s chemical & petroleum segment along with automotive unit and agriculture & minerals segments improved on a year-over-year basis in the second quarter of 2017.

The above positives substantiate Kansas City Southern’s Zacks Rank #2.Seems the time is ripe for investors to add this stock to their portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Stocks to Consider

Investors interested in the Transportation sector may also consider Alstom SA , Canadian National Railway Company (CNI - Free Report) and Canadian Pacific Railway Limited (CP - Free Report) . All these stocks carry the same bullish rank as Kansas City Southern.

Shares of Alstom and Canadian National Railway have surged 33.5% and 21.7%, respectively, in a year, while Canadian Pacific Railway shares have gained 3% in the last six months.

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