CSX's (NASDAQ:CSX) Dividend Will Be Increased To $0.11

The board of CSX Corporation (NASDAQ:CSX) has announced that it will be increasing its dividend by 10.0% on the 15th of March to $0.11, up from last year's comparable payment of $0.10. Despite this raise, the dividend yield of 1.3% is only a modest boost to shareholder returns.

See our latest analysis for CSX

CSX's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, CSX's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 14.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 19%, which is in the range that makes us comfortable with the sustainability of the dividend.

CSX Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.187 in 2013, and the most recent fiscal year payment was $0.40. This means that it has been growing its distributions at 7.9% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

CSX May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, CSX's EPS was effectively flat over the past five years, which could stop the company from paying more every year. If CSX is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

We Really Like CSX's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for CSX that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.