Here are two transportation stocks that offer long-term share price gains and growing dividends. 1) A trucking company whose stock price is rising, dividends are raised each year and its share buy-back program keeps rewarding shareholders; and 2) a global courier whose ever-rising dividends only yield 0.83 per cent because the share price keeps going up so much!
Describing itself as “a North American leader in the transportation and logistics industry, TFI International operates across the United States, Canada and Mexico though its subsidiaries.”
Shares of TFI (TSX—TFII) have jumped by 13.5 per cent since last fall. This gives them upwards momentum, and we expect the company to earn more money this year. It raises its dividend each year, and buys back its shares. TFI remains a buy for further long-term share-price gains as well as decent and growing dividends.
In 2016, TFI’s adjusted net income from continuing operations was $195 million, or $2.04 a share. This was up by 12.1 per cent from $186 million, or $1.82 a share, the year before.
TFI’s earnings per share rose by more than its earnings. That’s because it spent $151.2 million to buy back 6,442,702 shares. This was slightly offset by 365,519 shares issued under stock options. Spreading the profit over fewer shares raises earnings per share, of course.
We expect TFI to continue to repurchase shares. It can buy back over 5.9 million shares by Sept. 29, 2017. This should speed up the company’s growth in earnings per share.
TFI is a ‘dividend aristocrat’. In Canada, the term refers to companies that have raised their dividends for at least five years in a row. TFI now pays 76 cents, for a decent yield of 2.45 per cent. In 2012, it paid 50 cents a share. With a target payout ratio of about a quarter of earnings, we expect the company’s dividends to rise, along with its earnings in the years ahead.
A transformational year for this transportation stock
Chairman, president and chief executive officer Alain Bédard said: “2016 was a transformational year for the Company. We made an important acquisition [XPO Logistics] that bolstered our presence in the North American Truckload market, including the growing U.S.-Mexico cross-border corridor.” XPO Logistics is one of the largest service providers of cross-border trucking into Mexico. The trouble is, this business may suffer, as U.S. President Donald Trump wants to import much less from Mexico.
The acquisition of XPO Logistics also means that TFI now generates about half of its revenue in the U.S. This is positive as its the fastest-growing member of the G7 (Group of Seven) industrialized countries.
One area of growth for TFI is deliveries for electronic commerce customers. In the fourth quarter, its Package and Courier revenue jumped by 38 per cent from a year earlier, to $96.2 million. Electronic commerce deliveries raised its Truckload segment’s revenue by 15 per cent, to $34.7 million. Revenue in the two segments grew. Revenue in the Less-Than-Truckload and Logistics segments fell. In 2016, the Package and Courier segment accounted for over 35 per cent of TFI’s revenue of $3.761 billion. The Truckload segment generated nearly 40 per cent of the revenue.
Mr. Bédard says: “We are cautiously optimistic in regards to the North American economy . . . [this] should produce a gradual recovery in freight volumes and rates. . . . TFI International’s growth will also stem from executing its selective acquisition strategy.” Indeed, it has acquired two companies so far in 2017: World Courier Ground U.S. and Cavalier Transportation Services.
In 2017, we expect TFI’s earnings to grow by 10.3 per cent, to about $2.25 a share. Based on this estimate, the shares trade at an attractive price-to-earnings ratio of 13.8 times. Buy TFI for further long-term share price gains plus decent and growing dividends.
Multinational courier’s profits and dividends are rising
FedEx Corporation’s shares (NYSE—FDX) have climbed by 12.2 per cent since early November. This gives them upwards price momentum, and the company is expected to earn record profits this year and next. It continues to raise its dividends quickly and to buy back shares. FedEx remains a buy for further long-term share-price gains as well as small, but fast-growing, dividends.
In the nine months to February 28, FedEx earned $8.33 a share. This was up by 14.4 per cent from $7.28 a share, a year earlier. Its ROE (Return On Equity) is expected to total a healthy 21.3 per cent in fiscal 2017 (fiscal year end on May 31).
FedEx is expected to profit from the acquisition of TNT. Analyst Kevin Downing writes: “In addition to vastly increasing the company’s presence in Europe, the combination is expected to generate $700 million to $800 million in cost synergies over a four-year time frame.” Cutting costs, of course, would raise FedEx’s profits.
FedEx’s earnings per share rose more than its total earnings. That’s because it buys back its shares. We expect the company to keep buying back its shares, as it has been doing since fiscal 2013.
Dividend and share price both rising quickly
We also expect FedEx to continue to raise its dividend quickly. It now pays $1.60 a share. That’s up by an excellent 60 per cent from a dollar a share last year. Last year’s dividend was up by 25 per cent from 80 cents the year before. Its dividend in turn was up a third, from 60 cents a share. Even so, the dividend yields only 0.83 per cent. The reason that the shares yield little is that they have gone up so much. It’s hard to complain about that.
In the financial crisis and recession of fiscal 2009 and 2010, FedEx maintained its dividend at 44 cents a share. Other than during that difficult period, it has raised its dividend every year.
In the year to May 31, FedEx’s earnings are expected to advance by 13.5 per cent, to a record $12.02 a share. Based on this estimate, the shares trade at a reasonable price-to-earnings, or P/E, ratio of 16.0 times.
The forward-looking market is already focused on FedEx’s outlook for fiscal 2018—which starts June 1. Next year, it’s expected to earn a record $13.39 a share, up by 11.4 per cent. Based on this estimate, the shares trade at an even better 14.3 times.
Provided that U.S. President Donald Trump can implement his fiscal stimulus plans, the U.S. economy should expand briskly. This would have a positive impact on FedEx’s earnings and cash flow.
FedEx has done well by its shareholders. That’s only natural. After all, directors and management own about 8.2 per cent of the shares. So, it’s in management’s best interests for the shares to do well. This makes their interests similar to yours.
FedEx remains a buy for further long-term share price gains.
This is an edited version of an article that was originally published for subscribers in the April 2017/First Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
The MoneyLetter, MPL Communications Inc.
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