Rolling Down The Dividend Highway

Investing In Dividend Paying Trucking And Transportation Stocks

 

Everyday the news headlines are seemingly dominated by the continued decline in oil prices and how lower oil prices will affect the energy industry in general. I wanted to take this drop in oil price a step further and examine a group of stocks that is rarely discussed yet intimately tied to the price of oil and diesel fuel; trucking and transportation services.

 

There’s little question that the trucking industry is huge. In fact the U.S. trucking industry alone is estimated to be approximately $650 billion in annual revenue. This staggering number accounts for 5% of the U.S. GDP. Trucking also dominates the commercial transport industry as a whole accounting for 84% of total revenue. The next major commercial transportation mode, rail, is a distant second and only accounts for just 6% of total revenue. As one might expect the trucking industry is one of the largest consumers of diesel oil and is very much impacted by crude price gyrations. It’s estimated that the U.S. trucking industry alone consumes over 52 billion gallons of fuel every year. Just trying to grasp these figures can be difficult.

 

With that being said I’d like to do an overview of trucking industry dividend paying stocks. With lower oil and diesel prices one might expect better profit margins for these companies going forward. Let’s see what this sector has to offer.

 

One of the largest names in the space, by market cap, JB Hunt Transport Services Inc. (JBHT), is a familiar sight on the American road. Headquartered in Lowell, AR, JBHT owns and operates approximately 60,000 company owned and customer owned trailing equipment and chassis. A huge fleet by any measure. Currently yielding a relatively low 1.06% with an equally low payout ratio of 23.1% the dividend appears to be very safe based on an EPS of 3.17. The dividend growth history of JBHT is pretty impressive as well having an annualized ten year dividend growth rate of 33.35%. While dividend increases have been happening for the last eleven years I fully expect this trend to continue albeit at a lower growth rate. On a valuation basis JBHT has a current PE of 25.1 which is about in line with its five year average but has a more attractive forward PE of just 20.2.

 

Another very familiar name on the American road which really needs no introduction is Ryder System, Inc. (R). Based in Miami, FL, R provides transportation services to small and large businesses via commercial rental of vehicles as well as offering supply chain solutions. Currently yielding a decent 1.79% with a relatively low payout ratio of 26.5% based on an EPS of 5.16, the dividend of R appears to be safe with further room to grow. The ten year annualized dividend growth rate of R is pretty healthy coming in at 9.00%. The current PE of R comes in at 16.0 which is just under its five year average and well below the market as a whole. Forward PE looks even more enticing at just 11.0.

 

Rolling down the dividend highway are the smaller trucking companies, by market cap, and Con-way Inc. (CNW). Headquartered in Ann Arbor, MI, CNW owns and operates approximately 9,300 tractors and 24,600 trailers throughout North America providing transportation and logistics services to manufacturing, industrial, and retail customers alike. CNW currently yields 1.46% with a low payout ratio of 25.4% based on an EPS of 2.14. As with the previous two trucking companies this stock appears to have a safe dividend based on current earnings with potential future growth. Less impressive is the ten year annualized dividend growth rate of just 2.26%. From a valuation perspective, CNW has a PE of 19.2 which is considerably lower than its five year average of 59.5. I think some further research might be warranted as to why the PE has declined as much as it has. Forward PE looks even more attractive at 12.3.

 

Another trucking company that pays dividends is Knight Transportation Inc. (KNX). Though smaller than the previous three trucking companies, these rigs are often spotted on the American highways. Based out of Phoenix, AZ, KNX owns and operates approximately 4,000 tractors between company owned and independent contractors as well as operating over 9,400 trailers. While sporting a yield that’s surely not to get many dividend investors excited of just 0.84%, this low yield comes with an extremely low payout ratio of just 16.8% based on an EPS of 1.25. What KNX lacks in current yield it makes up for in its ten year annualized dividend growth rate of 33.52%. The current PE of KNX is 22.7 which is slightly lower than its five year average. Though higher than the market in general its forward PE is line with the S&P coming in at 18.0.

 

Coming down the line is Heartland Express, Inc. (HTLD). Headquartered in North Liberty, IA, HTLD provides short and medium haul trucking services primarily for retailers and manufacturers. Another low yielding dividend stock, similar to KNX, HTLD yields a tiny 0.31% with an equally tiny payout ratio of 8.2% based on an EPS of 0.90. From a valuation perspective HTLD currently sports a PE of 28.5 and a forward PE 20.4 which is higher than its five year average PE as well as the market as a whole. Might want to wait till share price drops a bit on this one and the yield goes a little higher.

 

Finally, in our run down of dividend paying trucking stocks is Werner Enterprises Inc. (WERN). Based in Omaha, Nebraska, WERN seems to have the most international exposure from all the companies listed above with operations in United States, Mexico, Canada, China, and Australia. Having a fleet of over 7,000 trucks and almost 24,000 trailers, WERN operates in short, medium and long haul sectors. Currently yielding 0.70% with a small payout ratio of just 12.9% based on an EPS of 1.21, WERN may not get much attention from most dividend investors. With a current PE of 23.6 which is higher than its five year average and the S&P one might want to wait for a pullback before considering buying this one. Forward PE looks a lot more attractive at 17.1. For my money, I’d wait for a slightly higher yield and lower valuation for WERN and HTLD as well.

 

Clearly, there are quite a few options for a dividend investor to consider when looking at the trucking industry. I found it interesting that the six companies above all share, for the most part, similar dividend distributions in the sense that they are all relatively low yielding and carry very low payout ratios as well. While dividend yields below 1% may not excite many dividend investors the dividend growth rates and relative safety of the larger trucking companies cannot be discounted especially when looking at their ten year annualized dividend growth rates. JBHT and R come to mind from that perspective.

 

Are any dividend paying trucking stocks in your portfolio? Have you ever considered this sector now that oil and diesel prices are much lower which may translate to higher profitability and better margins for these companies? Please let me know below.

 

Disclosure: Long NONE

43 thoughts on “Rolling Down The Dividend Highway

  1. DH,

    Great article, and you hit the nail on the head by calling out the common denominator of low yields and low payout ratios. The higher payers are more attractive on the surface, but I believe there’s room in everyone’s dividend growth fund for a few of the low yield stocks that have ample room to grow over the coming decades.

    I personally don’t own any but transports in general are a gaping hole in my portfolio that I eventually want to fill with a couple quality companies.

    Best,
    DWC
    Dividends with Children recently posted…Recent Buy: Position IncreasedMy Profile

    • Hi DWC,

      Traditionally when people think about the transport sector names like UPS or FDX come to mind as well as many popular dividend paying rail stocks. Not sure why the trucking industry does not get as much attention being so much larger than rail and every other mode combined. It seems that with much lower input costs the trucking industry should be great performers going forward. At least, that’s the expectation. Granted, these names are pretty low yield but several offer very safe dividends with plenty of room to grow based on current cash flow and might provide some added diversification. Thank you for stopping by and commenting.

  2. DivHut,

    I really liked all of the companies here in one way or another, and I’ve seen each of their trucks. R and was definitely my favorite due to its P/E, but I really like those 10 year growth rates, despite the low dividends. They all have a lot of room to grow their payouts and I think their need will only increase (same goes for rail – all transport really).

    Going to go add some names to my watch lists now.

    – Gremlin

    • Hi DG,

      I thought it would be interesting to do an overview of the trucking sector. It’s such a massive market that doesn’t get discussed much among the dividend bloggers. I know we are all current yield hungry but sometimes taking a lower, safer and room to grow dividend might be a good option as well. Like you stated, their names and brands are very well known and can be seen at any time of day rolling down a highway. You know the saying, ‘invest in what you know’ and trucking seems like a business that is easily explained. It will be interesting to see how some of these companies report their earnings in the coming months as depressed oil prices surely affected input costs by lowering them and helped widen margins. Thank you for sharing your thoughts.

    • Hi LAH,

      While being capital intensive they currently have financial tailwinds in the form of much lower fuel costs. No doubt transport rates will remain unchanged for customers which should translate into wider operating margins. If nothing else, I feel the trucking industry deserves some consideration. Thank you for commenting.

    • Hi DGJ,

      That’s what I’m here for. I always find it fun and interesting to do an overview of dividend paying stocks from a sectoral perspective. Most of the names mentioned in this article are very widely known and can be seen on any U.S. highway at any time. I figured with all the low oil headlines in the news it must be interesting to see how the trucking industry is affected. From a dividend perspective many of the names mentioned here seem to offer very safe distributions. Thank you for stopping by and commenting.

    • Hi DG,

      I’m happy you have found some value in the names I have reviewed here. There’s no question that some of the trucking companies listed here offer some solid dividend growth and based on payout ratios and earnings have room to grow them. As always, I appreciate you stopping by.

    • Hi FtFF,

      You can learn a lot by writing these blog posts. I’m happy I took a look at the trucking industry and was amazed at how similar these companies are from a dividend perspective. As you mentioned and saw, they are all low yield, low payout ratio with some standouts displaying a very attractive dividend growth rate. Happy to share these names and this sector with you. I appreciate your comment.

    • Hi Tawcan,

      That’s part of the fun when examining a sector you have never considered. For such a massive industry that is responsible for over $650 billion in annual revenue it amazes me how little media attention this sector is getting especially with lower oil prices seemingly having a positive effect on the companies mentioned. Curious to see if any dividend bloggers will take a trucking sector plunge going forward. Thank you for stopping by and commenting.

  3. DH,

    I don’t have any trucking stocks in my portfolio. As far as transportation goes, I’ve been more prone to look toward railroad plays. CP and CNR are the big railway options in the Canadian markets. I would probably grab a slice of either/both except for the rather low yields. I may be pricing myself out of good opportunities, though, as I feel there is a lot of room to run going forward.

    – Ryan from GRB
    GetRichBrothers recently posted…Take a Penny, Leave a PennyMy Profile

    • Hi GRB,

      Your comment echoes the sentiment of most dividend investors in that the transportation sector often is equated to UPS, FDX and the rail stocks even though rail accounts for such a small percentage of transportation revenues. While the trucking companies do not offer high current yield they do offer (a few at least) growing and safe dividend payments. I wonder how trucking compares to rail in terms of costs to the shipper. With lower fuel prices trucking companies might make a bid for greater market share by lowering their costs to shippers. It will be interesting to see how earnings will come in for these companies. Thank you for stopping by and commenting.

  4. DivHut,

    I might have to take a closer look at this sector. Like you mentioned it will be interesting to see the effect lower fuel prices has on these companies. I would imagine that there will be a quite a boost to the bottom line as expenses will most likely fall faster than transportation fees charged to customers. This could be a great time to create or add to a position.

    MDP
    My Dividend Pipeline recently posted…Weekly Sharebuilder PurchasesMy Profile

    • Hi MDP,

      On the surface it makes sense that lower input costs should help margins but sometimes stock prices don’t always reflect what’s supposed to happen. I still find it interesting that the trucking sector does not get as much attention as others considering its size. Thank you for sharing your thoughts.

    • Hi IRtF,

      Thank you for the kind words regarding this article. JBHT and R seem to have the real dividend mojo among the companies mentioned considering their pretty high dividend growth rates. Something every long term dividend investor needs to pay attention to besides just current yield. Thank you for stopping by and commenting.

  5. Thanks for highlighting this industry DivHut. Usually when I consider transportation stocks my focus shifts directly to railway stocks. But how are the goods transferred from railway to their final destination? I am a little surprised to see that the industry has such a low dividend yield. I didn’t have any expectations going into it, but I would expect a few to be in the 2-3% range. Hopefully some of the PE ratios decrease on some of the stocks so I can add them to my watch list. Would be a great addition to the portfolio, but I think for now I will continue to focus on other areas that have ratios lower than the S&P.

    Again, thanks for putting the article together. The more stocks to consider the better!

    Bert, One of the Dividend Diplomats
    Dividend Diplomats recently posted…Bert’s Dividend Income Summary – JanuaryMy Profile

    • Hi DD,

      Your thoughts about transportation stocks is actually quite normal. As I mentioned in other comments, most people think of FDX, UPS or rail stocks and do not consider trucking even though trucking is, by far, the largest mode of transport and that even rail is dependent on trucking to get goods to their final destination. Like you, I was hoping to find a little better current yield but a couple names, at least, had pretty impressive dividend growth rates. I’m happy to present you with more dividend stocks to consider. It’s true, the more we expand our horizon of different dividend stocks the better off we all are. I can relate to that point very well as I wish I would have been introduced to the large Canadian banks when I first started dividend investing. It was a sector that I did not even think about and now I am invested in it. As always, I appreciate your comment.

  6. Nice list of stocks DivHut. All have such low payout ratios that should mean the dividends will continue to roll in year after year! Plus, with gas prices down, these companies should find it easier to profit since one of their largest overhead is at a nice discount. Thanks for sharing your research and thoughts on these companies. AFFJ
    A Frugal Family’s Journey recently posted…Stocks Added to Collection of Stock Analyses (Update) – End-Month (January 2015)My Profile

    • Hi AFFJ,

      My thoughts exactly. From this overview it seems that every dividend mentioned is safe based on current cash flow with room for future increases. I’ll admit I was hoping to find a little better current yield but I can also appreciate some of the tremendous dividend growth rates a few of the names have been offering. Thank you for stopping by and commenting.

  7. I haven’t considered trucking before. It didn’t actually occur to me to look though. When I think of shipping, I usually think of railroads, ships or Fedex/UPS. I have some friends who are truckers and they have a somewhat negative attitude towards the trucking business, so maybe I’m a little biased!

    If I was going to invest in one of these companies, I would need to go back historically and see how they handled the price increase of oil (were they able to pass it on to customers or eat it). I am fairly confident in the long run that oil will go up, so that information would be the first thing I looked into prior to buying!

    Thanks for hauling out a few previously unknown dividend companies!

    Take care!
    ILG recently posted…Site Changes and a few companies on my mindMy Profile

    • Hi ILG,

      The trucking sector definitely has its share of headwinds at times especially when oil prices rise and alternative rail routes prove to be more economical for shippers. However, many of the companies have survived thorough many oil price rises and declines and seemed to always come out fine. For the most part the companies mentioned have been around for decades and survived high interest rates for their capital intensive business as well as other financial headwinds. I guess it all boils down to their ability to pass shipping costs to customers no matter what economic environment they are operating in. Thank you for stopping by and commenting.

  8. What worries me about the trucking industry is that some may experience a great lift in the bottom line due to low fuel costs and start trying to spend more on capex, expanding territories, hiring more, etc. When in reality oil prices can do whatever they want. I’m just not one to time the market, and wouldn’t invest in a trucking company just due to current low oil prices. But obviously it looks like you do much more diligence than that. Good luck!
    Fervent Finance recently posted…Buffett vs. Hedge FundsMy Profile

    • Hi FF,

      You bring up several good points about actions the trucking industry might take during good times and potentially expand to a size that will not be profitable during bad economic times. I’m guessing the trucking industry operates a lot like the airlines and hedge a lot of their fuel costs by locking in low prices in anticipation of future higher prices. I remember several years ago when oil was around $150/bbl and LUV was rocking the airline sector as they were one of the only airlines that hedged their fuel costs and were paying significantly less than their competitors. It’s true that low oil prices alone are not reason enough to buy into the trucking sector, however, with record low oil prices one can certainly consider the sector. Thank you for commenting.

    • Hi Adam,

      I’m from the west coast and I know JBHT very well too. It seems like their trucks are everywhere. I can only imagine with the behemoth size of WMT how much of their goods must travel by truck. To be honest, I was shocked to learn about the size of the trucking industry and why it’s really not discussed much in the media especially with their reliance on oil prices. Seems like we hear a lot more about airlines and rail companies instead. I appreciate the comment.

    • Hi Vivianne,

      Well I don’t know about never seeing a portfolio dip. Even the best companies stumble every now and then and no stock only goes up. The key is to look at macro-economic events and see how to take advantage of it. For example, a stronger U.S. dollar and weaker global demand has caused oil, copper and iron to all plummet. In turn, many commodity related stocks are down significantly. This in turn causes yields to rise which may present good buying opportunities. It’s true that no matter what happens to the stock, as long as the dividend is covered by good cash flow, you can count on getting paid to wait which is really all we are looking to do, collect ever increasing dividends. Thank you for stopping by and sharing your thoughts.

  9. I don’t have any trucking stocks but Ive noticed some airlines have been doing quite well now that gas prices are lower. Who knows if that will continue. I don’t normally invest in airlines either as I don’t like the industry (for investing) but if I did, I’d consider selling now before gas prices jump back up to the levels we saw last year
    Dan @ Our Big Fat Wallet recently posted…Staying Fit on a BudgetMy Profile

    • Hi OBFW,

      On the surface you would think the trucking companies would be performing very well alongside the airlines with lower fuel costs and get the same attention as the airlines but for whatever reason the media coverage of the trucking sector is no where near as much as the airlines. Both need to hedge fuel costs, both are capital intensive and both operate in nearly identical sectors yet are seen as two varied industries. Like you, I do not and probably will not invest in any airlines nor trucking companies for that matter. I like a little more stability in portfolio and not something that is tied to a volatile commodity. Thank you for stopping by and commenting.

    • Hi DD,

      As you know it’s part of the fun of being a dividend investor. I always love to uncover sector specific dividend stocks and see what I find. Usually, dividends vary a lot from company to company but not in the trucking sector. I was a little surprised to see that all six of the companies mentioned have very similar dividend distributions. All are low yield and have very low payout ratios with room to grow dividends and for the most part have some history of raising dividends as well. Happy to be ‘bringing a different flavor to the table!’ As always I appreciate your comment.

  10. I had no idea that the trucking industry actually dominates the commercial transport industry. I like knowing that trucking is a rising field and is determined to have a good future growth. That is smart to look into different trucking industries to find the best option for you.

    • Hi TA,

      There’s little doubt that trucks make up an important segment of our transportation industry. It’s really all about the “last mile” delivery and trucks are the only way to do it effectively. The trucking industry will remain quite resilient for some time and eventually will evolve into a driver-less sector. Thank you for commenting.

  11. Wonderful article, and you struck the nail on the head by calling away the common denominator of low yields and low payout ratios. The greater payers are more attractive on the surface, but We believe there’s room in everyone’s dividend growth pay for for a few of the low yield shares that contain ample room to grow over the arriving decades.

    • Hi silveroak,

      Glad you enjoyed the article. There’s nothing wrong with a low current yield as long as there is dividend growth going forward. Being a long term investor sometimes means creating a portfolio that has a balance of low and high current yielding stocks along with fast and slow dividend growth. The trucking and transportation industry clearly offers some solid long term dividend investing prospects. Thank you for stopping by and commenting.

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