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