Everyone knows that United Parcel Service (NYSE: UPS ) and FedEx (NYSE: FDX ) are the biggest players in shipping, but few people know about C.H. Robinson (Nasdaq: CHRW ) -- the third largest air delivery and freight company in the U.S. -- which offers some unique services that larger rivals FedEx and UPS don't. But is this differentiation a strength or a weakness?
Different is not always better
C.H. Robinson marches to the beat of its own drum. A third-party logistics company, it provides rail, ocean, and air freight transportation, as well as transportation management services. Oh, I almost forgot: It also buys, sells, and markets fresh produce. Naturally.
While the company's focus on providing fresh produce doesn't necessarily make it a winner, at the end of the day it's a way C.H. Robinson differentiates itself. Already, 8% of revenues come from its food division. Couple that with the company's built-in transportation network and the growing popularity of organic foods, and it would appear that C.H. Robinson may be onto something.
Although C.H. Robinson may be more confused about its identity than a pubescent middle-schooler, its 2.3% dividend is no joke.
What about other freight companies like Expeditors International of Washington (Nasdaq: EXPD ) and UTi Worldwide (Nasdaq: UTIW ) ? Examining these five businesses and a few key metrics, we can get a decent idea of how their dividends stack up against one another, and what that means:
|United Parcel Service||18.9||3.0%||54.8%|
|Expeditors International of Washington||22.8||1.5%||31.2%|
Notice the dividend yield, but remember that it should be considered jointly with the payout ratio.
The payout ratio measures the percentage of a company's net income that goes to paying the annual dividend. A higher ratio means investors should watch the dividend carefully because it may not be sustainable. A low ratio, on the other hand, means that a company probably has room to increase its dividend in the future.
What can we tell from these numbers?
A few quick takeaways from the table above:
- UPS rewards investors with a yield higher than its rivals. As an established player, this company is a safe investment, although dividends aren't likely to grow quickly.
- FedEx, for such a massive company, looks like it could stand to put a little more cash back in shareholders' pockets. The company can certainly afford a dividend hike, so that would be nice to see.
- Expeditors International's dividend doesn't look too bad, and as Fool writer Selena Maranjian noted in a recent article, the company's 14% dividend growth rate is a good sign that we will likely see this company continue to give back more money to investors. That said, the company trades at a slight premium to the others on the list.
- UTi Worldwide doesn't look like anything to write home about. While it certainly has room to increase its dividend judging from its low payout ratio, the company recently missed on both revenues and earnings estimates. A small dividend won't be much consolation if the company continues to disappoint.
But differences are, after all, key
Let's take a second glance at C.H. Robinson, this time with the above table in mind. It trades at a reasonable 20 times earnings, has an above-average dividend, and has a payout ratio that looks entirely reasonable. As long as the company continues to focus on its core competency -- shipping -- and keeps its fresh produce business as a secondary endeavor, C.H. Robinson should continue to thrive.
The freight industry has a few other quality options for income investors, but there are great opportunities in other industries as well. The Motley Fool's special free report, "The 3 Dow Stocks Dividend Investors Need," is another quality resource for the serious dividend-seeker. Read through your copy today, for free.