In Warren Buffett's most recent letter to Berkshire Hathaway's
The ability to move one ton of freight almost 500 miles while using just one gallon of fuel means more than fuel-cost savings. The more freight that is moved by train (and the less by truck) means reduced dependence on foreign oil, lower greenhouse gas emissions, less traffic gridlock, and lower highway construction and maintenance costs.
The major haulers
Today's heavy lifters in rail freight include CSX
Company |
Market Cap (billions) |
Yield |
Dividend |
Payout Ratio |
Net Profit Margin |
Free Cash Flow |
---|---|---|---|---|---|---|
CSX | $28.55 | 1.98% | 51.25% | 23% | 14.7% | $1,425 |
Canadian National | $35.25 | 1.79% | 16.22% | 23% | 25.36% | $1,422 |
Union Pacific | $50.59 | 1.92% | 18.83% | 24% | 16.39% | $4,105 |
Norfolk Southern | $27.44 | 2.28% | 20.76% | 35% | 15.72% | $1,244 |
Kansas City Southern | $6.17 | N/A | N/A | N/A | 9.92% | $209 |
Source: Google Finance, Motley Fool CAPS, and company statements.
All but Kansas City Southern pay a dividend. And of those that do, the yield is around 2%, with those dividends growing strongly over the last five years -- in the case of CSX, at a 51.25% rate! Canadian National's net profit margin stands out at 25.36%, noticeably higher than the rest. They all have a comfortable free cash flow cushion, with Union Pacific's jumping out of the crowd at $4.1 billion.
A recent phenomenon that is adding to the railroads' bottom lines -- as fellow Fool Aimee Duffy points out here -- is the increase in new cars being shipped by rail from the revitalized automobile industry.
Rail has a lot going for it as a freight hauler and as a long-term investment. The higher fuel prices go, the more attractive rail gets. Over the long haul, I can't see fuel costs coming down, environmental issues going away, or hard-pressed government budgets able to easily pay for more and more roads. However, I would like to see the railroads increase their dividend payout ratios a bit to make their yields even more attractive, as they certainly have the cash to do so.
Keep an eye on CSX, Canadian National Railway, Union Pacific, Norfolk Southern, and Kansas City Southern by adding them to your watchlist.