(The following column by Paul Whitfield appeared on the Investor’s Business Daily website on March 13.)
Trolling for a high dividend yield isn’t always the best strategy for an income investor.
In the long run, the strength of a company, its sector and the dividend growth rate are key factors.
Rail operator CSX (CSX) is a good example of a company that has its act together.
For starters, it’s making the trains run on time.
In 2007, its on-time performance was an all-time best for the operator of rails in the East and two Canadian provinces.
Its safety record improved 17% in ’07 — an important factor because a couple of derailments can cost as much as $20 million.
Customer satisfaction rates are the highest since CSX launched its surveys six years ago.
Annual earnings have increased for four consecutive years. The earnings stability rating is 7 — an excellent mark on a gauge that ranges from 1-99, with 1 being the best.
Despite softness in the auto and housing market, the rail sector itself is doing well. Coal export shipments are the best since the 1990s because of overseas demand. Farm and fertilizer shipments are up. Plus a weak dollar boosts earnings.
While the dividend yield is only 1.2%, the dividend was increased in 2005, 2006 and 2007.
CSX’s management is under fire from a London-based hedge fund that says the company is underperforming vs. competitors. But the market itself and IBD’s ratings tell a different story.
The IBD Stock Checkup at Investors.com rates CSX No. 1 in Overall Rank in its industry group. CSX carries an EPS Rating of 92, meaning that it is outearning all but 8% of the market. Its 94 Relative Price Strength Rating is the best in its group, and a B+ in Accumulation/Distribution points to buying by institutions.