Old Dominion Freight Line (ODFL): This Dividend Growth Stock Deserves Your Attention
July 13, 2022 at 04:00 AM EDT
Old Dominion Freight Line (NASDAQ: ODFL) is a dividend growth stock with an unusual twist. The company only recently started paying a dividend in 2017, and its yield of 0.44% puts it at the bottom 25% of all stocks that pay dividends. To put that yield into perspective, owning $1,000 worth of shares in ODFL would pay out less than $5 a year, which is certainly nothing to write home about. However, other aspects of the company's dividend and its broader fundamentals make it worth considering as a long-term play in the trucking industry.
Old Dominion Freight Line's Fundamentals
The company's five-year dividend growth rate is 71.88%, compared to the sector median of 7.99%, producing an exceptional 799.29% difference. While the meteoric growth of the company's dividend will undoubtedly slow down over the years as it approaches the median industry yield of 1.74%, it's also essential to understand the fundamentals behind what's driving it.
ODFL has a surging amount of free cash flow at $0.682B reported in 2021. With all this excess cash and a negative net debt, company executives are returning value to investors by hiking its dividend and performing a very competitive amount of share buybacks, which is where the company's true strength can be found. ODFL's share buyback ratio is currently 1.90, which puts it above 93% of its competitors in the transportation industry. In July last year, the company announced that it would buy back $2B worth of shares on top of its previously announced $700 million. In the same year, ODFL spent over twice the amount of its free cash flow on buybacks than it did on net capital expenditures. This cost has shrunk for three consecutive financial years in favor of returning an ever-increasing amount of value to investors.
ODFL compared to J.B. Hunt Transport Services, Inc.
One of ODFL's main competitors in the trucking industry is J.B Hunt Transport Services (NASDAQ: JBHT). JBHT has a smaller