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
market cap than ODFL, with $17.36B compared to $30.95B. The stock is also significantly less expensive, which means it has more upside potential on several important fronts. JBHT's dividend yield is expectedly higher than ODFL at 0.85% compared with 0.37%. Other facts that make JBHT's dividend stronger are that it has increased its dividend every year for the last 17 years, and its payout ratio sits at a healthy 16.13%. This compares favorably with ODFL's payout ratio at 9.19%. The dividend difference could be less significant when considering how aggressively ODFL is buying back its shares.
In terms of valuation, JBHT comes out on top for several essential ratios. JBHT's FWD P/E ratio is 17.33 compared with ODFL's FWD P/E of 23.23. The difference in valuation is more pronounced when assessing the price/sales ratio. ODFL's P/S is at 5.51 compared with JBHT's 1.32. This is significant as both companies have a 5-year revenue CAGR growth of 13.12% for ODFL and 14.39% for JBHT, respectively. The effect of buying back shares may partially offset this difference, but also consider that ODFL is more than 4x more expensive to buy a unit of sales than JBHT while having similar historical and forecasted growth rates. Shares outstanding for ODFL stand at 113.35M while JBHT stands at 104.78M.
