Markets have been jittery for quite some time, pushing the Zacks S&P 500 composite into in the red at the end of 2018, after substantial gains in the first three quarters. The coveted index, despite rising more than 9% in the first nine months of the year, shed nearly 6% of its value at year end. Factors like oil price decline, U.S.-China trade war-related disputes, Fed rate hike and fears of global economic slowdown kept investors on the edge, leading to a sell-off in the final few months of 2018.
Transports Suffer Big Time in 2018
In this write up, we concentrate on one of the key Zacks sectors — transportation. The widely diversified Zacks Transportation Sector, which includes airline operators, railroads, truckers, third-party logistics (3PL) companies and shippers, to name a few, performed dismally in 2018.
This key sector logged nearly 18% losses due to multiple woes, including volatile oil prices, labor woes and weather-related disruptions, performing worse than the S&P 500 index.
Price Performance in 2018
Transports Take a Beating Despite Low Oil Prices
It is a well-documented fact that costs associated with oil are considered major inputs for any transportation company. A rise in oil price leads to a sharp increase in operating expenses of the sector participants, which in turn implies that the health of these stocks is inversely related to fuel cost.
Oil prices had displayed an uptrend till early October, increasing more than 20%. In a stunning reversal, oil prices have been on a downward trend since then, declining more than 40% on fears of supply glut and economic headwinds.
Despite the low oil price scenario, the transportation sector has shed more than 10% in the final two months of the year.
Volatility Continues in the New Year
Markets continue to exhibit volatility in 2019 as well. After gaining on Jan 2, markets crashed the following day due to lackluster manufacturing data and announcement from Apple’s (AAPL - Free Report) CEO Tim Cook that the tech behemoth was slashing its revenue forecast for the first time in the last 15 years. CBOE Volatility Index (VIX) — Wall Street’s so-called fear gauge — increased 3.8% to close at 24.10.
Moreover, oil prices may display wild swings in 2019. This implies that 2019 is likely to be another tumultuous year for investors interested in the transportation space.
Dividend Investing – A Safe Way Out
Given the widespread uncertainty, investing in companies that offer consistent dividends can make for wonderful investment choices. Dividend stocks are always investors’ preferred choice as they provide steady income and cushion against market risks.
Such companies, courtesy of their solid financial structure and healthy underlying fundamentals, are generally less volatile in nature and are, therefore, dependable when it comes to long-term investment planning.
4 Picks for Transport Investors
The transportation sector boasts well-paying stocks in terms of dividends. Key sector participants like Norfolk Southern Corporation (NSC - Free Report) and Delta Air Lines (DAL - Free Report) hiked dividend payouts in 2018. What is even more encouraging is the fact that transports are likely to continue their dividend-paying approach due to the huge savings induced by the current tax law.
Reduced tax rates should continue to boost cash flow. Huge savings imply that more cash will be available to fund their capital expenditures, acquisitions and share repurchases among others.
As investing in dividend stocks seems prudent during uncertain times like these, we have zeroed in on four transportation stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy), which also have a strong dividend-paying history. Also, these companies raised their dividend payouts in 2018. You can see the complete list of today’s Zacks #1 Rank stocks here.
CSX Corporation (CSX - Free Report) is a premier transportation company providing rail, intermodal and rail-to-truck trans-load services and solutions. The stock carries a Zacks Rank #2. The Zacks Consensus Estimate for 2019 earnings per share has been revised 0.5% upward, over the last 60 days. In February 2018, the company announced a 10% dividend hike to 22 cents per share.
Expeditors International of Washington (EXPD - Free Report) , based in Seattle, WA, is a leading 3PL provider. The Zacks Consensus Estimate for 2019 earnings per share has been revised 0.9% upward over the last 90 days. In May 2018, the company announced a 7.1% semi-annual cash hike to 45 cents per share.The stock carries a Zacks Rank #1.
Triton International Limited (TRTN - Free Report) , based in Hamilton, Bermuda, is the largest lessor of intermodal containers. The Zacks Consensus Estimate for 2018 earnings per share has been revised 2.5% upward over the last 90 days. In May 2018, the company hiked its quarterly dividend by 7 cents hike to 52 cents per share. The stock carries a Zacks Rank #2.
Alaska Air Group (ALK - Free Report) , based in Seattle, WA, together with its partner regional carriers, serves more than 100 cities across North America. The Zacks Consensus Estimate for 2019 earnings per share has been revised 13.3% upward over the last 90 days. In January 2018, the company announced a 7% hike in semi-annual cash hike to 32 cents per share. The stock carries a Zacks Rank #2.
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