If you're seeking income investments in an area that's plugged in to the U.S. economy, consider the vital business of logistics. The logistics industry is a subsector of the transportation industry, which itself accounts for nearly 8% of U.S. gross domestic product.
Logistics companies assist commercial enterprises in the shipment of goods over the major modes of transportation: road, air, rail, and ocean. These organizations also provide numerous services to transportation companies, including fleet management, warehousing, inventory management, and transportation network design. Let's review three top dividend-paying logistics candidates for your portfolio.
A third-party leader with price appreciation potential
C.H. Robinson Worldwide (CHRW +2.37%) is one of the largest third-party logistics companies in the United States, and indeed the world, with 2016 total revenue of $13.1 billion. The company operates in three major segments: North American surface transportation (NAST), global forwarding, and Robinson Fresh.
C.H. Robinson's primary business is helping customers move freight, which it does through contractual relationships with 107,000 transportation providers. It also offers supply-chain and other logistics services, and through its Robinson Fresh segment, it provides for the global shipment of perishable foods.
The company's largest segment, NAST, gains the bulk of its revenue from facilitating truckload and less-than-truckload shipments. Truckload volumes have been robust in recent quarters, but a competitive environment has hampered C.H. Robinson's ability to adjust pricing. In addition, roughly two-thirds of the company's truckload business is comprised of "committed" or contractual pricing with typical contract lengths of one year.
So while total revenue has increased 11.8% in the first two quarters of 2017, net revenue (total revenue less the costs of shipment services), has declined by just over 1%.
Over the next few quarters, as contracts come up for renewal, C.H. Robinson's management will adjust its committed pricing, and this may have a positive effect on the stock, which has gained just 7% over the past 12 months on a total return basis.
While shareholders wait for price appreciation, they enjoy compensation in the form of robust dividends. C.H. Robinson has bumped its dividend each year since 2006, and its quarterly payment of $0.45 yields 2.5% annually at the current share price. Finally, the organization's payout ratio of 52.2% is quite sustainable, easing the path to future increases.
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A lean logistics operator
Jacksonville, Fla.-based Landstar System, Inc. (LSTR +0.57%) runs an "asset-light" model of logistics services. The company uses independent commissioned sales agents to match customers' shipping needs with the capacity of independent trucking carriers and trucking brokerage carriers.
While Landstar leases some truck trailing equipment to carriers, it functions as more of a true logistics middleman. The company's net equipment is small in relation to sales; operating property of $272.8 million at year-end 2016 was equal to just 8.5% of total 2016 revenue of $3.2 billion. Landstar's relatively light balance sheet contributes to its high annual return on invested capital, which is typically north of 20% in any given year.
The company garners a higher proportion of its revenue from the spot (non-contracted) market than C.H. Robinson. In its most recent quarter, Landstar was able to take advantage of higher spot pricing in the truckload market to record its highest-ever quarterly revenue total of $870.4 million. Management predicts that the third quarter should also provide strong revenue because of its observation of firming capacity trends in the industry.
Landstar boasts 12 years of consecutive dividend increases. Its quarterly dividend of $0.10 per share produces an annual yield of 0.45%, and a payout ratio of just 10.4% provides ample space for more dividend hikes to come.
An ocean and freight specialist with an extremely profitable side business
Unlike C.H. Robinson and Landstar System, Expeditors International of Washington (EXPD +1.92%) doesn't have a revenue concentration in trucking logistics. The company's three major operating segments are alr-freight services, ocean freight and ocean services, and customs brokerage and other services.
Expeditors, as it refers to itself, is notable for fairly decent profits in a margin-thin industry. In the past 12 months, the organization's net profit margin of 6.5% was higher by roughly 200 basis points than Landstar's profit margin of 4.4% and outpaced C.H. Robinson's 3.5% margin by 300 basis points.
This relatively richer profitability stems from the company's emphasis on customs brokerage. Expeditors is one of the few customs brokers with truly global scale, and in addition to customs services, the company offers trade consulting and trade-management software to global shippers. The customs brokerage segment, though slightly smaller than Expeditors' two other segments on a total revenue basis, boasts an operating margin of 52%, versus roughly 26% in both the air freight and ocean freight segments.
The company is also differentiated by its emphasis on industry technology. Expeditors develops and sells cybersecurity, infrastructure management, data analytics, and data integration software and services to end users in the industry, which contributes to its comparatively stronger profits.
Expeditors' margins translate into vigorous quarterly cash flow, which has enabled management to pass 11 consecutive annual dividend increases. The company's twice-annual payout yields 1.5%, and its payout ratio is a conservative 35.5%. Like its two peers, Expeditors has much potential to boost total return for the patient investor.
