FedEx is a dividend achiever with a 17-year record of annual dividend increases. The last dividend increase for FedEx occurred in June 2018, when it hiked quarterly dividends by 30% to 65 cents/share.
Over the past decade, FedEx has managed to grow dividends at an annual rate of 18.30%/year.
Earnings per share increased from $3.60 in 2008 to $12.57 in 2018. The 2018 earnings per share have been reduced by the impact of the new tax law signed in effect in 2017. The one-time impact reduction to EPS was for $4.22/share. On a side note, the company’s year-end is in May, rather than December. FedEx is expected to earn $16.01/share in 2019, which is before any one-time items.
The company has achieved growth through strategic acquisitions. The latest acquisition was that of TNT Express in 2016. FedEx is still working on integrating TNT Express into its operations, in order to generate the synergies and cost efficiencies it projected.
The rise in global economic output over time, should stimulate demand for package deliveries. This won’t be a smooth uptrend of course, given the fact that economies contract occasionally as well. FedEx and UPS are well positioned to ride the increase in online sales over time. The companies have to invest sufficient resources to address peak demand for their services around the holidays.
FedEx generates 43% of revenues in the US. Roughly 70% of revenues are coming from ground transportation and includes FedEx Kinko’s while the rest come from freight services throughout the US.
The international business accounts for 57% of revenues and transports packages in 220 countries.
The company has also managed to repurchase some shares over the past decade, which has helped grow earnings per share.
FedEx became active on the share repurchases front in 2014. Between 2008 and 2013, shares increased from 312 million to 317 million. Since 2013, FedEx has managed to reduce the number of shares all the way down to 266 million.
The dividend payout ratio increased from 12% in 2008 to 18% in 2018. It looks like dividend growth over the past decade was largely driven by growth in earnings per share, with only some support from growing the payout ratio. I believe that the payout ratio can easily grow over the next decade, which could translate into high dividend growth during that time period.
Currently, the stock is attractively valued at 11.30 times forward earnings and yields 1.45%. Based on 2018 earnings, the stock is still attractively valued. FedEx is a cyclical stock, which means that it is better to buy it on a dip. It is also important to remember that cyclical companies are usually cheapest at the top of the cycle, when their earnings are highest. They look their worst at the bottom of the economic cycle, because their earnings are very depressed.
Relevant Articles:
- Five Dividend Increases From Last Week
- United Parcel Service (UPS) Dividend Stock Analysis
- Thirteen Dividend Growth Stocks For Further Research
- Dividend Achievers Offer Income Growth and Capital Appreciation Potential