I Noticed that both CSX and NS increased there dividend this year…
Meanwhile there have been a number of wrecks due to bad equipment and overtaxed right of way. Intresting that Trains Cited that CSX got 450,000,000, (?) to fix up tracks in florida but onthe condition that no expansion of passenger trains be allowed on the line.
CSX also has gotten a tax break in New York State on the Condition that they fix the tracks but I have not seen any MOW blitz yet. Sure we had the flooding last summer along the mohawk and maybe that was to spur on some maintance .
The Problem with public funding of private companys is too somehow to avoid the direct transfer payment to Investors using public taxpayer funds. It would seem that the dividend check that I am getting is actulay coming from taxpayer moneys that were supposed to be used for fixing the railroad.
The railroads have there hands out now and they want public funds. Railroads serve a public purpose and should be fixed using public funds… but only after the Investors have exsausted there resorces and agree to forgo divideds for that year.
The old fasioned way was when the railroad was first getting built the towns and countys along teh route would give money to the railroad in exchange for shares of stock. In the mondarn era I propose that if the federal goverment is going to give the railroad any money they should get shares of prefered stock and a seat on the board of directors.
Trouble is you do that then the BOID namely the Board Of Ioidt Directors will not be able to give all the high execs those HUGE bonuses at the end of the year for meeting the Earnings Per Share requiements that they set in order to get those stock options and cash that are set in those ridiculas contracts. I am sorry for getting on my[soapbox] but no CEO whose RR is experincing service slowdowns and major crashes do to deferring maintance needs to get ANY BOUNUS OR STOCK OPTIONS LET ALONE PAID until their RR is in good repair. Of the Class 1’s BNSF and NS are earning or close to earning their cost of capital and are also in good repair so no problem there. CSX on the other hand the ENTIRE BOID needs to be hauled out into the yard starpped to a flatcar on a 90 degree day and sent down a sunkinked line at 70 mph behind a worn out engine that is held together by a prayer. Maybe then they would get the idea to fix the RR before they give out any more Gold Parachutes to leaving CEO’s.
Don’t fix the RR up keep pushing the dividend up higher and higher sooner or later the House of cards will crash ENRON ring a bell. You have to remember that RR require capital to keep the tracks in good repair and also the rolling stock faliure to do both and you will end up with in bankrupcy court with your Stockholders going how did this happen. Remember this every year you fail to maintain your right of way means when you do it will cost you even double or triple all at once to fix it. Since instead of just having to do maintance you will have to shut down reroute and then rebuild that portain of the tracks and anymore on most class ones there is not the extra trackage to do that anymore.
UP has also increased its dividend, but at the same time increased capital expenditures. As somebody here said, you increase the dividend to attract investors who will provide the money for the expenditures.
I have a bit of a problem with companies which use their free cash flow to buy back shares and then want the government to fix their capacity problems.
I certainly understand that dividend payouts are part of the corporate finance picture and it is difficult to reduce or eliminate that payout. The share price normally will drop if the payout is reduced or eliminated.
Mature industries such as railroads often use dividends as an attraction to investors. After all, what else would they do with the cash? If they cannot find a use for the cash which exceeds their cost of capital, then they are doing the investors a disservice.
The railroads now are in an interesting situation. They have essentially been a “mature” industry for quite a long time, one could say over 100 years. Dividend payouts are expected and were required since there was little investment to be made. Now, however there is opportunity for growth. Remember what happened to Rob Krebs and BNSF back in the late 90’s when he invested for growth. Investors didnt like it and voted against it with the stock.
CEO’s and BOD have a delicate balance to maintain between supporting shareholders, growth, financial structure, etc.
Probably the one thing that disappoints me most is the buyback of shares with free cash flow and then the issuance of stock options to those executives and others which basically cancels out the share buybacks. But, that is another story.
I think Ed and I share the same concern on this. If the railroads were actually selling stock to finance improvements, this would make sense. But they aren’t. Improvements are being funded from debt/cash flow.
The only “new stock” out there are option shares, which have become a very valuable item, because company funds are used to increase the dividend, and then company funds are used to provide a ready market for the sale of shares. I don’t think the avereage investor is complaining too much.
But, the real beneficiaries are management, which benefits substantially more from this arrangement than the public investor ever could, since the public investor is still subject to market risk, whereas the beneficiary of the option is not.
Further, the option process, in the control of management itself, distorts the market value because neither the new shares nor the buyback programs represent genuine market forces. That is, shares are issued for non-capital raising reasons (that is, they do not contribute capital), and a huge source of purchasing power is applied to the re-purchase of shares for non-market and non-investment reasons. That purchasing power does not represent an investment decision or a judgment about the company, but rather is a blind tool that simply buys shares. And when it’s the biggest buyer in the market – the market is inherently distorted.
As a result, does market cap represent a geuine market assessment of the company? Most likely, a buy-back program tends to overvalue the company, but for so long as it results in an over-stated market cap, the average investor is not complaining about that either.
So, while management and the investors can only benefit from the process – at
The issue here is that the real owners of the railroad “Intitutional Investors” want to see increases in there dividend. The University of Pennysvania owns huge blocks of CSX and NS stock and well as other colleges. They depend on these dividends to fund there programs and have placed there own proffesors at there colleges (http://www.wharton.upenn.edu/faculty/)
Invidual investors are intrested in Growth Stocks like the health tech and computer stocks.
The issue here is yes the western railroads have added 3rd track and even reopened long dormant lines that have been inactive for 15 years(Ok correct me if I am wrong) But CSX and NS have all the traffic growth being shoved from the west being shoved down one of two corridors (NS route NYC-Pennsy or CSX B&O-NYC) that have the capasity to have added tracks (See last months map of 4 track mainlines) but have not done so. We have more trains then ever beating the crap out of the same track and bridges that have not been redone sine 1910.
While I am not asking something as radical as reopening the Erie Laccawanna all the way to Chicago what I am saying is that CTC has its limits and its time to triple track.
Oh, I’d prefer not to, for the reason that even the fact of making a minor observation on something like this tends to exagerate its importance or significance. Indeed, derailments may be so uncommon that, as a statistical matter, at a certain level they are inevitable.
A rail system will never be Six Sigma.
And I do not want to unfairly suggest there is a problem on this line, when in fact it is simply that maintence is good enough as to make some of the failures a surprise, rather than a daily fact of life as it was on another property I was once familiar with.
Think of the ROW as your house you can defer the maintance on it for a long time to ease the cost of ownership. However sooner or later the bills will come due and you will have to fix both the past and future maintance that cames due. My parents found this out first hand on their house themselves. They did not maintain the roof amd a simple reroof turned into a major repair due to a leak that they tired to patch. What should have cost 500 bucks ended up costing my folks over 5 grand 10 years later.
That is a good comparison. However, I think today’s lines are in pretty decent shape, at least for most of the large carriers (NS, CSX, UP, BNSF, CN, CP, KCS). Ok, there will be comments made that the CSX lines need some work. Cant comment on that. But, for the most part deferred maintennace seems to be a thing of the past. Please correct me if I am wrong on this.
Where your comparison really works is if your family had a 2 bedroom, 1000 square foot house and thru gradual increase in the family size ended up with 4 kids plus the 2 parents. I think most carriers today need investment to expand rather than to fix. Again, correct me if I am wrong.
We had 4 kids 2 adults in a 750 square foot house with 2 bedrooms and one room in the basement we converted into a bedroom. We were cramped but made it work. Funniest thing is one bathroom in the whole house with no tub shower only. My parents are so glad I now have a 3 bedroom 2 bath house 30 mins away for when my oldest brother comes up for leave that way he stays with us him and his wife his kids stay with the grandparents so it works out nice.
The Class One RR’s generally pay a dividend of between 1.6% and 1.8% per annum on their common stock (see, for example, Morningstar or Yahoo Finance). That’s less than half of what you’d get in a 12-month CD that is government-guaranteed to be safe. The short-line operators like Genesee often don’t pay any dividend at all. Any stock ownership always carries some risk.
The NS has been buying back some of their stock lately. Such an action generally means that the stock-buying company has faith in its future. It also tends to mean that it does not consider its per-share
I would be more comfortable with an expression of “faith” in any company’s future if management expressed it with their own money, not the Company’s – other people’s – money.
I would further be more comfortable if their expressions of such remarkable faith were not inevitably and explicitly tied to the repurchase of their personal option shares at great personal profit to themselves.
I look at railroading for a different standpoint. I am a former OTR driver if my company pushed its trucks to the limit on maintance and did not fix minor issues when they occured we ended up with MAJOR issues case in point I had a differantal gear that could have been adjusted tighter mechanic said I did not know what I was talking about. So I ran with a bad rear end gear for a few weeks and about 10K miles later pulling a HOT load basically get it there ASAP YESTERDAY that gear decided to EXPLODE when it did it took out the back rear end gear its housing the intermediate drive shaft between the 2 rear ends the thru shaft that carrired the power from the front diff to the rear diff and also the front diff at the same time. instaed of a simple adjustment and 2 hours of labor to fix it cost my boss 15K in parts alone and another 5 grand in labor to do. Not to mention he had to team up 2 drivers the next morning to relay the load bobtail them to where I was have them p/u the trailer and run to the customer. Not fixing things for the sake of the bottom line will bite even larger in the end I can remember some of the companies my father driving for that went broke for the same reasons. It is called you have to spend money to make money in any transportation field.
I look at it this way which airline would you feel safer on Southwest who if there is any issue with the aircraft grounds it and refuses to take any maintance shortcuts or American who was told the right way to remove the DC-10 engine yet decided to remove it another way which was faster yet led to the engine falling off.
Long answer: corporations cannot “water” stock as they did in the 1920s. Thanks to the SEC, a corporation cannot simply announce it is creating X new shares. It has to go through a lengthy process and arbitrage factors apply so that existing shareholders don’t have the value of their holdings reduced.
There are some things a corporation can do, and they usually depend on permission by the SEC as well as willing financiers:
1-It can offer bonds or debentures. These are debt obligations and the interest is paid to the holder at a fixed rate over a fixed time. This is probably the easiest way to stir up some fresh cash for the long run. Provided they can deal with the interest payments.