Railroad stocks have been really resilient in this economic downturn. Some are even making all-time highs! However, they are all expected to experience earnings cuts this year on a GAAP basis, which is not surprising given the far and wide impact the COVID-19 pandemic is having on the global economy.
Railroad stock data by YCharts. The 1-year price action of railroad stocks: CN Rail, CP, UNP, NSC, and CSX.
In other words, these railroad stocks are getting expensive. Some are fully valued. Others are slightly overvalued.
Want to create a secure, growing income stream from your dividend stock portfolio? What are the characteristics of the safest dividends? Investors buy dividend stocks for the stable income. So, it’s essential to choose stocks that generate safe, growing dividends.
The characteristics for the safest dividends include:
culture of increasing dividends, and
conservative payout ratio
Stable Business. Stable Earnings.
Behind each stock that pays a dividend is a business. If the business is not profitable, it cannot pay healthy dividends. Which sector or industry is the business in? The type of the business helps us determine whether a business’s earnings are stable or not.
For example, consumer staples and utilities typically generate very stable earnings because there’s a consistent demand for their needed products and services no matter how the economy is doing.
On the other hand, businesses whose profitability rely on commodity prices can fall hard in price. Many energy companies have cut their dividends in this oil rout.
Look at Crescent Point Energy Corp (TSX:CPG)(NYSE:CPG) and Canadian Oil Sands Ltd (TSX:COS) as examples. In 2015, they slashed dividends by 57% and 86%, respectively. What did you expect? Both are expected to earn negative earnings in fiscal year 2015.
There’s a similar situation with regards to falling earnings for the miners such as Teck Resources Ltd (TSX:TCK.B)(NYSE:TCK) and BHP Billiton plc (ADR) (NYSE:BBL)(NYSE:BHP). Falling earnings have led to falling prices for energy companies and mining companies alike. Read More