Eastern Railroad Discussion > CSX to expand stock buy back program

There's now five billion in the pot for buybacks, and dividend increase to 22 cents

https://seekingalpha.com/pr/17071804-csx-corporation-announces-increase-dividend-share-repurchase-program



Edited 1 time(s). Last edit at 02/12/18 08:23 by Lackawanna484.

I wonder if this is a move to own more stock in anticipation of a merger? HH tried a merger at CP, perhaps his clones are thinking of getting as much as they can out of a CSX sale. The way they are treating customers makes one think that Foote's comments about the long term future of CSX are pure BS. Greedy Hedge Funds have no interest in running a company or long term futures. Unfortunately, they will alienate customers that will never come back and leave a wrecked company in their wake.

CSX has been repurchasing stock for many years. It's a way to increase share price.

dispr Wrote:
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> CSX has been repurchasing stock for many years.
> It's a way to increase share price.

Yes indeed...for whatever reason, CSX's employee stock is not obtained on the market but is created on demand. This results in a lot of outstanding shares after a few years. When you spread the company valuation over a large number of shares you dilute the value of individual shares. Buyback takes some of those shares off the market and cancels them, increasing the value of remaining shares, and damping the swoons and swells of volatility.

engineerinvirginia Wrote:
-------------------------------------------------------
> dispr Wrote:
> --------------------------------------------------
> -----
> > CSX has been repurchasing stock for many years.
>
> > It's a way to increase share price.
>
> Yes indeed...for whatever reason, CSX's employee
> stock is not obtained on the market but is created
> on demand. This results in a lot of outstanding
> shares after a few years. When you spread the
> company valuation over a large number of shares
> you dilute the value of individual shares. Buyback
> takes some of those shares off the market and
> cancels them, increasing the value of remaining
> shares, and damping the swoons and swells of
> volatility.

CSX also issues a lot of stock options each year. When these come due, the number of shares in circulation increases.

So, buying back shares on the open market reduces the float of stock. When an option is exercised, the holder pays money into the corporation to buy those newly available shares.

WONK ALERT

There's an argument among financial people about whether buybacks are "good" or not. One line argues the firm should be using that cash to modernize, improve the right of way, expand training and pay opportunities, etc. That's loosely the "return on capital invested" argument. If you have a low return on capital, then you may be better off buying back your stock.

If you have a high return on capital invested, then modernizing etc will increase earnings far above the amount invested.

From an individual investor standpoint, you pay taxes on dividends, and so does the company. So, a dollar of earnings might only be 30-40 cents after the layers of taxes. But using that dollar of earnings to buy back shares might put 80-85 cents in the owner's pocket.

Thanks for the information regarding this.

It’s also true that stockholders demand a higher return on investment than bond holders. This may be a way to lessen the cost of capital.

The recent market fluctuations may make stock holders demand more. Bond holders are locked in at a guaranteed rate. They may be looking for more cost certainty going forward. I believe a lot of companies will be going this route.

I seem to recall this very scenario being a concern of the opponents of “tax reform” - that companies would use their tax windfall to buy back shares instead of reinvesting in the business and increasing wages.

bigkidpgh Wrote:
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> I seem to recall this very scenario being a
> concern of the opponents of “tax reform” -
> that companies would use their tax windfall to buy
> back shares instead of reinvesting in the business
> and increasing wages.

Yup. No surprise to many observers..

As for increasing wages, expect more one off bonus payments in place of "annual increases". The effect of 2% or 3% compounding every year bumps labor cost pretty quickly. There's already a lot of activity on the automation front, and that's just a start.

(I was in a McDonald's in Fort Myers FL last week. The store uses the new kiosks for ordering, and paying. You don't pick out stuff at the counter. When you finish ordering, you insert your credit card, or cash, the process is completed, and change made.

Your receipt has an order number, and you're called to the pickup counter when it's ready. Or, you can use your app, and make your order that way, and pay for it in the app. Think of the number of low wage, low skilled people who are at risk with that technology.)

Posted from Android



Edited 1 time(s). Last edit at 02/12/18 18:41 by Lackawanna484.

Off topic, but I don't like going to McD and being my own cashier, and spreading germs around on their touch screen. I stopped going to my local McD for that reason.

On topic, I wish CSX would try to just concentrate on real railroading, and maybe the stock would rise naturally.