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CSX Corporation’s CSX efforts to reward its shareholders through dividends and buybacks are encouraging. However, high debt levels and coal market woes are major concerns.
Factors Favoring CSX
As a reflection of its shareholder-friendly stance, in 2022, 2023 and 2024, CSX paid dividends of $852 million, $882 million and $930 million, respectively. With a quarterly dividend of 13 cents per share (annualized to 52 cents per share), CSX's dividend yield is currently 1.75%. Dividend-paying stocks like CSX are generally safe bets for creating wealth, as these payouts act as a hedge against economic uncertainty, which characterizes current times. CSX is also active on the buyback front. It repurchased shares worth $4.73 billion in 2022, $3.48 billion in 2023 and $2.24 billion in 2024.
The company's focus on enhancing workplace safety for its employees is commendable. As a reflection of this, the Federal Railroad Administration or FRA Personal Injury Frequency Index, a measure of the number of FRA-reportable injuries per 200,000 man-hours, improved to 0.89 in 2023 from 1.01 in 2022. The FRA train accident rate improved to 3.32 in 2023 from 3.37 in 2022. Highlighting its focus on safety, CSX intends to launch a new safety training program for operations leaders in the current year.
Key Risks for CSX
Rail network issues due to headwinds like locomotive or crew/labor shortages and other service disruptions represent a major challenge for CSX. Network issues or supply-chain constraints are likely to adversely impact service levels, in turn hurting operating efficiency or volume of shipments. With labor costs being high (up 4% in 2024), operating expenses are elevated, in turn hurting the bottom line.
CSX’s significant capital expenditures indicate high debt levels, with total net capital expenditures expected to be $2.5 billion for 2025. Additionally, higher interest expenses primarily due to long-term debt issuances are partially offsetting earnings growth, which could impact profitability and financial stability in the long term. As a matter of fact, the company’s times interest earned ratio of 6.5 compares unfavorably with the industry’s ratio of 7. At the end of 2024, CSX had long-term debt of $17.9 billion, with a long-term debt-to-capitalization of 59%.
Coal market weakness is a major headwind for CSX. The weak coal market has resulted in below-par coal revenues. Coal revenues fell 10% year over year to $2.24 billion in 2024. Coal volumes decreased 3%. For 2025, CSX expects coal volumes to be lower due to facility shutdowns and mine production issues.