FDX Stock Benefits from a Solid Business
FedEx Corporation (NYSE:FDX) stock is a company that needs no introduction because of its presence around the world.
Operating in an oligopoly, meaning there is very little competition, FedEx owns a large market share, which is a big benefit for the bottom line. It also has the advantage of partnerships with many different types of retailers from around the world.
Many of these companies are also changing their business plans in ways that make FedEx a requirement, which would only add to the list of partnerships. This would include retailers that sell consumer staple—necessary products, such as food, which sell regardless of the state of the economy. Businesses involved in consumer staples act as a steady stream of revenue for FedEx.
FedEx also benefits from the growth in e-commerce in relation to consumer staples. A great example of a company that is expanding its home delivery service for online shoppers is Wal-Mart Stores Inc (NYSE:WMT), which acquired 100% online retailer Jet.com, Inc in September 2016. Jet.com’s product lineup includes many consumer staples goods. Amazon.com, Inc. (NASDAQ:AMZN) is also looking to expand its consumer staples offerings, which can bring even more entries in this market segment. (Source: “Walmart Completes Acquisition of Jet.com Inc.,” Wal-Mart Stores Inc, September 19, 2016.)
Another aspect that is normally overlooked is the partnerships FedEx has with those in the medical industry, such as doctors and hospitals. This part of the business also has a global presence and is a steady stream of revenue. It includes cross-boarder deliveries, temperature-sensitive shipments, and providing secure everyday deliveries to pharmacies. This part of the business is also recession-proof because healthcare services will always be needed.
Rewarding Shareholders
FDX stock is currently trading at $188.86, while the 0.85% dividend yield is nothing to brag about. However, digging deeper into the history of the dividend, you’ll find that it has more than doubled over the past six years. The dividend policy is reviewed in June of each year.
Looking forward for FDX stock, is it still possible to see more dividend hikes?
To answer this question, consider the payout ratio, which is the percentage of earnings paid out via the dividend. With a payout ratio of approximately 14%, management has the ability to increase the company’s dividend further without harming its financial position. Also keep in mind the company’s performance, as revenue comes in at a steady rate and has been growing year after year.
FedEx’s administration has also been engaged in share buybacks. These reduce the number of outstanding shares of FDX stock, which translates into investors owning a larger percentage of the company. Share repurchases also mean that there is continued support of the stock price, as people are buying FDX stock. This also signals to the market that those within the company believe the shares to be undervalued.
Final Thoughts on FDX stock
With evidence of being shareholder-friendly, including paying a growing dividend and repurchasing shares, many investors may find exactly what they’re looking for in an opportunity from FDX stock.
Even though the current yield dividend is not high, if the dividend continues to grow, then the yield on cost is only going to increase over time.