Crude oil prices jumped 15% to $62.90 per barrel on Sep 16 (the biggest one-day gain since December 2008), following drone attacks on crude oil facilities in Saudi Arabia, which knocked out about a half of the kingdom’s daily crude production. However, Saudi Arabia quickly restored 50% of crude production losses and oil prices started retreating from the historic gains of Sep 16.
This apart, the ongoing trade tensions with China, sluggish freight scenario in the United States and other geopolitical issues also give rise to fears of an economic slowdown.
Transports Not Immune
Given this widespread uncertainty, it is natural that the widely diversified transportation sector, which includes airlines, railroads, shippers and leasing companies to name a few, would also be feeling the pinch.
For example, sluggish freight shipments do not bode well for most players in the space. In fact, according to the latest Cass Freight Shipments Index report, North American freight shipments declined for nine consecutive months starting December 2018. What is more concerning is that the sluggish freight environment is expected to persist through this year as predicted by the biggest freight broker in North America, C.H. Robinson Worldwide (CHRW - Free Report) , while releasing its second-quarter 2019 results.
Slowdown in global trade due to Sino-U.S. trade tensions is a major headwind for companies in the space as it is hurting demand. As evidence, railroad operator, Union Pacific (UNP - Free Report) trimmed its volume growth outlook for the second half of the year blaming the trade spat.
Additionally, third-party logistics provider, Expeditors International of Washington (EXPD - Free Report) , which has significant exposure to China, witnessed a decline of almost 5% in its revenues from North Asia in the first six months of 2019. In fact, revenues from Expeditors' primary unit, Airfreight Services, declined 5% in the first half of 2019. Moreover, the prolonged grounding of Boeing 737 MAX jets is hurting airline operators with such jets in their fleet due to increased losses from multiple flight cancellations.
Moreover, the steady decline in utility coal shipments in the United States is hurting railroads’ top lines. This is because fortunes of railroad operators are tied to coal as revenues from the commodity contribute significantly to top line. According to the Association of American Railroads, coal rail traffic this year is down 6.6% through Sep 14.
Sector Lags on 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 gained 13.8% of its value, the Zacks S&P 500 Composite has increased 18.5%.
Stocks to Buy Now
Given this jittery backdrop for the sector participants, we believe that investors interested in the space should tap companies that not only pay out consistent dividends but also raise the same. This is because such companies are mature and can generate steady cash flow irrespective of market conditions.
We have zeroed in on three transportation companies that offer a decent dividend yield and carry a Zacks Rank #2 (Buy). Also, they have raised their dividend payouts this year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Delta Air Lines (DAL - Free Report) , based in Atlanta, GA, provides scheduled air transportation for passengers and cargo in the United States and internationally.
In July, the company’s board cleared a 15% quarterly dividend hike to 40.25 cents per share ($1.84 annually). The increase marks the sixth consecutive dividend hike by the company which has a dividend yield of 2.7%. Furthermore, the Zacks Consensus Estimate for 2019 earnings has increased 6.3% over the past 90 days.
GATX Corporation (GATX - Free Report) , based in Chicago, IL, is a leading global railcar lessor specializes in railcar and locomotive operating leasing, aircraft operating leasing, information technology leasing, and venture finance for customers in diverse industrial sectors worldwide.
In January, the company’s board of directors cleared a 4.5% hike in its quarterly dividend to 46 cents per share ($1.84 annually). Also, GATX has an impressive record with respect to dividends. It has been offering dividends regularly since 1919. The company has a dividend yield of 2.3%. Furthermore, the Zacks Consensus Estimate for 2019 earnings has increased 1.6% over the past 90 days.
SkyWest (SKYW - Free Report) , St. George, UT, operates a regional airline in the United States. In February, the company increased its quarterly dividend payout by 20% to 12 cents per share (48 cents annualized). SkyWest has a dividend yield of 0.8%. Furthermore, the Zacks Consensus Estimate for 2019 earnings has increased 1.5% over the past 90 days.
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