Stocks in the railroad space are being aided by a buoyant U.S. economy. Also, a robust domestic economy is leading increased transportation of goods across the country.
One of the star performers in the railroad space is Norfolk Southern Corporation (NSC - Free Report) . The stock has outperformed its industry in the first nine months of 2018. Shares of Norfolk Southern have gained 24.6% compared with the industry’s 19.2% rally.
Volume growth is aiding Norfolk Southern immensely. In the first half of 2018, volumes have increased 4% on the back of impressive performances at its key divisions. Volume growth is expected to continue through the remainder of the year as well. In fact, at the Cowen and Company 11th Annual Global Transportation Conference, the company stated that third-quarter overall volumes increased 5.7% year over year as of Sep 1.
In order to increase productivity, Norfolk Southern is making constant efforts to streamline its operations, which are commendable. The company is also looking to cut costs in order to drive the bottom line. The improvement in operating ratio (operating expenses as a percentage of revenues) this year is a positive. The metric has improved 170 basis points on a year-over-year basis in the second quarter of 2018. The company aims to achieve an operating ratio of below 65% by 2020 or even earlier.
We are impressed by the company’s focus on rewarding shareholders through share repurchases and dividends as well. In the first half of 2018, Norfolk Southern rewarded its shareholders to the tune of $1.1 billion through dividends ($408 million) and buybacks ($700 million). In July 2018, the company increased its quarterly dividend by 11% to 80 cents a share. Notably, this is the second dividend hike by the company this year.
In the first quarter, the company had hiked its dividend by 18% to 72 cents a share. Combining the latest hike, the company has raised its dividend by 29% this year so far. The hikes underscore its strong financial condition and bright prospects. Also, a look at the past records reveal that the company has a stable dividend payment history.
Apart from Norfolk Southern, railroad operators like Union Pacific Corporation (UNP - Free Report) , CSX Corporation (CSX - Free Report) and Canadian Pacific Railway Limited (CP - Free Report) increased their respective dividend payouts this year.
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