One of the largest U.S. rail network operators, CSX Corporation (NYSE:CSX). , has performed very well for its shareholders. Over the past decade alone, shares have risen by 440% and the dividend has increased pretty consistently over that period. Despite the gains, I think the rail transportation industry still has a lot of upside due to the continued economic recovery as well as shareholder-friendly management.
With about 21,000 miles of rail, CSX runs the largest rail network in the Eastern United States, operating in 23 states and Canada. CSX transports all sorts of materials, with coal being its largest revenue generator (27% of revenues in 2012).
With the improving economy, there will be more materials to transport, particularly those materials required in manufacturing and construction. This should cause earnings growth in all of the major railroad companies over the next few years at least.
CSX has two things going for it that long-term investors love to see: buybacks and dividends. CSX currently yields 2.44% and has increased the dividend for 6 years in a row (see chart), a trend that I expect will continue.
As far as share buybacks go, CSX Corporation (NYSE:CSX) has a great record, and in fact has reduced the number of outstanding shares by 14% over the past four years. I expect this to at least continue or even to accelerate over the next few years, as the management has approved larger and larger buyback plans.
Over 88% of the revenue in the railroad industry is generated by the four largest railroads: CSX, Norfolk Southern Corp. (NYSE:NSC), Union Pacific Corporation (NYSE:UNP) , and Burlington Northern Santa Fe, LLC (NYSE:BNI). The railroads are only mildly competitive with one another and share assets and interfacing systems. Just a bit about the competition:
Norfolk Southern Corp. (NYSE:NSC) is the closest competitor to CSX, also operating in the Eastern United States, with about 20,000 route miles in 22 states. Very similar in revenue makeup to CSX, Norfolk Southern Corp. (NYSE:NSC) also generates a substantial portion of its revenues from coal (26%).
Union Pacific Corporation (NYSE:UNP) is the largest U.S. railroad, operating over 32,000 miles of rail in the western part of the country. Their revenues are not quite as dependent on coal as the competition, less than 20% of revenues coming from energy-related cargo.