Last update on 2024-06-27

CSX (CSX) - Dividend Analysis (Final Score: 7/8)

Discover the detailed dividend analysis of CSX (CSX) with a score of 7/8. Explore its performance metrics including yields, payout ratios, growth, and stability.

Short Analysis - Dividend Score: 7

We're running CSX (CSX) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The analysis evaluates CSX's dividend policy using 8 criteria, scoring 7 out of 8. CSX has a dividend yield of 1.2691%, slightly below the industry average, which may be conservative but potentially unappealing to income-focused investors. Their average annual dividend growth rate is robust at around 16.38%, although with significant fluctuations. CSX's average payout ratio at 25.15% favors reinvestment, indicating financial stability, and their dividends are well-covered by earnings. However, their free cash flow often falls short of covering dividends, suggesting reliance on other funding sources. CSX has a record of stable dividends, paying consistently for over 25 years with no significant drops. They have also maintained a reliable stock repurchase program, reducing shares significantly in the past 20 years.

Insights for Value Investors Seeking Stable Income

For investors seeking stable dividends, CSX appears to be a solid option due to its consistent dividend payments for over 25 years and strong dividend growth rate. However, income-focused investors may be cautious due to the slightly lower dividend yield compared to the industry average and occasional shortfalls in free cash flow coverage. Overall, CSX is worth considering for those looking for long-term stability and potential stock price appreciation.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Checking the dividend yield is a critical measure to evaluate the income generated from an investment in comparison to the industry. It informs us if the stock is aligning with or diverging from the industry standard.

CSX's current dividend yield of 1.2691% is slightly lower than the industry average of 1.47%. While the company's yield has historically been closer or sometimes even higher than the industry average, recent performance shows a more conservative payout. In the years 2008 to 2015, CSX consistently provided a higher yield compared to the industry, peaking in 2012 at 2.7371% while the industry average was 1.75%. Post-2015, CSX's dividend yield moderated, aligning more closely with market performance. Considering the 20-year trend, CSX's dividend yield has been comparatively resilient, although the stock price appreciation over the years (a rise from $1.9967 in 2003 to $34.67 in 2023) suggests that the company's policy may be shifting towards capital gains rather than high dividend payouts. While the slight underperformance in yield relative to the industry can be seen as conservative, it may discourage income-focused investors. This trend is somewhat unfavorable if the expectation is a yield outperforming the industry standard.

Average annual Growth Rate higher than 5% in the last 20 years?

The dividend growth rate represents the annualized percentage rate of growth that a particular stock's dividend undergoes over a period. It is a key indicator of the company’s ability and willingness to pay dividends and to maintain a stable or increasing dividend payout. A higher rate generally signifies good financial health and potential for value appreciation.

CSX's dividend per share has exhibited varied performances across the past 20 years, from 0 in 2003 to 10 in 2023. The growth rate fluctuates significantly with peaks in years like 2007 (63.557) and lows in 2016 (2.8715). Given the calculated average dividend ratio of approximately 16.38, which is well above the 5% benchmark, CSX's long-term dividend growth rate demonstrates good performance. This trend is defined as generally positive, indicating robust financial health. However, the substantial variability calls for a nuanced assessment. Certain years see drastic drops, indicating periods of potential financial challenge or strategic reinvestment. Overall, while the average growth rate suggests success in the long run, investors should remain cautious of the short-term volatilities which may impact dividend income stability.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio measures the proportion of earnings a company distributes to shareholders in the form of dividends. Ideally, an average payout ratio below 65% indicates the company retains enough earnings to reinvest in growth, signaling financial stability and future growth potential.

Over the last 20 years, CSX (CSX) has maintained an average payout ratio of approximately 25.15%. This trend is quite favorable, as it significantly falls below the 65% threshold. Specifically, CSX's payout ratio ranged from 8.57% in 2005 to 39.82% in 2016, pointing to a conservative and sustainable dividend policy. Given the low payout ratios, the company retains a substantial portion of its earnings, which it can reinvest into its operations or cover during economic downturns. This conservative approach contributes to the financial health and long-term growth potential of CSX.

Dividends Well Covered by Earnings?

Dividends are considered well covered by earnings when the payout ratio, calculated as dividend per share divided by earnings per share, is relatively low. A higher ratio implies potential financial strain.

Analyzing the dividend payout ratios for CSX from 2003 to 2023, we can see that the payouts are consistently covered by earnings, with most ratios below 0.35. The maximum payout ratio observed is around 0.40 in 2016, while the lowest is around 0.085 in 2005. These relatively low payout ratios indicate that CSX has been prudent in managing its dividends in correlation with earnings, signifying financial health and stability. Particularly, the trends since 2017 showcase a more balanced approach despite some fluctuations. Overall, this trend is favorable as it suggests CSX can sustain and potentially grow its dividends without jeopardizing its earnings capacity.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow indicate a company's ability to sustain its dividend payments from the cash it generates through its core operations. A high coverage ratio suggests that the company is generating sufficient free cash flow to pay dividends, reflecting financial stability and reduced chances of dividend cuts. Analysts generally look for a ratio of 1 or higher as a benchmark.

CSX has experienced a fluctuating Free Cash Flow over the years. From 2003 to 2005, the company had negative years. However, starting from 2006, the trend turned positive, with notable increases between 2017 and 2023. Free Cash Flow in 2023 was $3,268 million. Concurrently, the dividend payout increased steadily, reaching $882 million in 2023. Despite this increase in dividends, CSX's dividend coverage ratio has been below 1 most years, indicating that the dividends are often not fully covered by the free cash flow. For example, in 2023, the coverage ratio was 0.27, suggesting that only 27% of the dividends could be covered by the free cash flow. This scenario may be concerning as it implies that the company might be relying on other sources of funding to pay dividends, potentially affecting its long-term financial health.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors, as it offers assurance of reliable and predictable income streams.

CSX has managed to steadily increase its dividend per share from 0.0222 in 2003 to 0.44 in 2023. Despite fluctuations in the broader economy, CSX's consistent progression reflects robust financial health and strategic management. Importantly, the company did not experience a year where dividends dropped by 20% or more in the past two decades, which is favorable for stability-seeking investors. This trend indicates strong earnings performance and prudent payout policies by CSX.

Dividends Paid for Over 25 Years?

Criterion 6 examines whether the company has paid dividends consistently for over 25 years. This is a crucial factor for income-focused investors seeking stable and reliable returns.

CSX has consistently paid dividends for the last 25 years, starting from 1998 to 2023. The dividend per share has shown an overall upward trend, growing from $0.0667 in 1998 to $0.44 in 2023. This consistency and growth in dividends indicate the company's strong financial health and commitment to returning value to shareholders. The trend is favorable and suggests CSX's reliability as a dividend-paying stock.

Reliable Stock Repurchases Over the Past 20 Years?

A reliable stock buyback program demonstrates a company’s commitment to returning value to shareholders. It indicates a confidence in the company's future prospects and can enhance per-share metrics.

CSX has shown a strong commitment to share repurchases over the past 20 years. The number of shares has consistently decreased from 3.86 billion in 2003 to 2.01 billion in 2023, with notable buybacks in every year from 2007 onwards. This reduction demonstrates a consistent and reliable buyback strategy. The average repurchase rate of -3.1629% per year further indicates a dedicated effort to enhance shareholder value. This trend is good as it reflects positively on CSX’s financial management and its focus on increasing shareholder returns.