A CSX train chugging along. Image source: CSX.

CSX Corporation (NASDAQ: CSX) reported full-year 2015 earnings in mid-January that were modestly higher year over year. It wasn't exactly a great update, but the real drag was a warning that 2016 is going to be an even harder year for the railroad. We have to ask, will CSX raise its dividend in 2016?

Getting harder
CSX's net earnings in 2015 were up a scant 2% year over year. Weakness was pretty much widespread, with volume up in only three major categories. And even there, volume growth was slower in two of those segments in 2015 than it was in 2014. Moreover, revenue per unit was weak across the board, with an overall decline of roughly 5% for the year. So CSX made less per unit hauled.

Image source: CSX.

It really wasn't a great year for CSX. Adding to the dour news, however, was this future-looking comment: "Impact of continued low commodity prices, strong U.S. dollar and energy market transition is expected to further challenge 2016 performance." That was one of the lead comments at the very top of the earnings release. For investors seeking income, it wouldn't be outlandish to question if the dividend will be upped in 2016 with such a negative backdrop.

That negative outlook wasn't unique to CSX, though. Competitors Kansas City Southern (NYSE: KSU) and Norfolk Southern (NYSE: NSC) both provided dour outlooks at a recent analyst conference. The entire railroad industry is under pressure right now.

Point of order on the dividend
CSX last raised its dividend when it announced first-quarter earnings in 2015. That dividend was paid in June, so there were regular quarterly dividends at a lower level paid in 2015 before that hike went into effect. So, technically speaking, even if the railroad doesn't up its dividend at all in 2016, the sum paid for the year will be higher than the sum paid in 2015. It would have to cut its dividend for the over decade-long annual increase streak to end.

Most investors wouldn't consider that a dividend hike, though, which brings up a subtle difference on the bottom line. CSX's net earnings were up 2%, but its earnings per share were up 4%. How is it that the total dollar figure was up less than the per share number? Easy, CSX bought back roughly 18 million shares during 2015 at a cost of around $800 million.

So, there are fewer shares over which to spread net earnings and, more relevant here, future dividend payments. So, with fewer shares, it's easier for CSX to up its dividend since it would require less cash. And while the company's cash balance fell by around $40 million last year, it still has well over $600 million in cash on the balance sheet. Note that the stock buyback was a big cash drain, but it was an optional expense -- so there's at least a little cushion for the dividend in that. And while debt makes up about half of the capital structure, that's not unreasonable for a capital-intensive business like railroads -- thus, not that big of an issue for the dividend.

Unless the bottom completely falls out of the business, it looks highly likely that CSX has the wherewithal to up the dividend. Moreover, with over a decade of hikes already on the books, there's clearly a corporate dedication to annual increases. In other words, it's a good bet that CSX will up its dividend again this year.

Not all bad news
It's also worth noting that, while 2016 isn't going to be a banner year, there's some good news to hang your hat on. For example, CSX continues to improve its operating ratio, dropping it from 71.5% in 2014 to 69.7% last year. The goal is to hit the mid-60% range, which means more heavy lifting in 2016 on the efficiency front.

That won't stop 2016 from being a relatively bad year, but it shows that CSX is still performing well underneath the market's broader dynamics. It's executing well in the areas it can control. That should give the board another reason to continue the annual dividend streak. In the end, if you are wondering whether or not CSX will raise its dividend in 2016, it looks like the answer is heavily weighted toward yes.