Best Railroad Stocks

Railroad stocks are some of the most established securities in our investment market. Railroads were the major form of commercial transport during the Industrial Revolution and they remain essential to the world’s consumer economy today even in a world of drone delivery and space flight. If you’re looking for railroad stock under $10, this may not be the industry for you. 

Railroad stocks have traditionally been a haven for cash-flow investors and are well known for their steady dividends. This may have been the reason Warren Buffett continued to hold Berkshire Hathaway’s position in BNSF Railway Co. even as he wholly dumped other transportation industry stocks during the coronavirus pandemic. However, many investors are taking advantage of macroeconomic shocks and new technologies to pull capital gains out of railroad investments.

Remember, railroad operators are still essential to the supply chain and the economy on the whole. Every investor has seen a train pass by during their daily commute, and those trains often bring the products you need to your city. However, railroads have issues with revenue generation because the network isn’t growing and the locomotives are getting older. How can investors split the difference and avoid losses?

Quick Look at the Best Railroad Stock:

• Norfolk Southern
• Canadian National Railway Company
• Warner
• Union Pacific
• Trinity Industries Inc.

Overview: Railroad Stocks

Railroad stocks were the dominant trading security during the 1800s. Mohawk & Hudson, the first railroad stock, was traded on the NYS&EB, a precursor to the New York Stock Exchange (NYSE). Speculation on railroad stocks caused the failure of Jay Cooke & Company, a prominent Philadelphia finance firm in 1873. The NYSE shut down for 10 days in the aftermath. Over the next few decades, railroad stocks would be an essential component in funding railroads and creating the fortunes of the Vanderbilts, the Goulds and the Huntingtons. 

Consumer service has always held the bottomline steady in railroading, but technology has always driven its growth. The railroad companies providing investors with great returns today are incorporating precision scheduled railroading (PSR). PSR allows more efficient asset utilization, which improves the operating ratio and overall profitability. Higher efficiency also shields the company from the losses in revenue that usually correspond with economic downturns. This leads to better earnings per share and higher investor returns.

Remember, however, that railroad stocks can be quite volatile. Yes, Warren Buffett made quite a lot of money in this sector, but the industry could go south at any time. Plus, if progressive policies calling for high-speed rail prevail, it’s more likely that the industry will surge that much more. If not, it’s possible that companies like UPS and FedEx could enhance their air fleets and push for air cargo to make a dent in the railroad sector.

Best Online Brokers for Railroad Stocks

Because railroad companies were established as a cornerstone of the stock market, they are all usually available on the majority of online brokers. Even if you are in the U.S., you can easily invest in railroads based in Canada or Hong Kong. Railroads were essential in building the international connection among securities markets in different countries. That relationship is far too established to easily break.

Because you can find your chosen railroad stocks on virtually any broker, you have more leverage to choose that broker based on its individual idiosyncrasies. No matter how good your chosen stock may be, you still need great execution to make profits in the stock market. You get great execution from the tools your broker provides.

Take a look at this online broker comparison table and choose based on the features that complement your trading style.

Features to Look for in Railroad Stock

Here are some important features to look for in railroad stocks.

1. Rail line mileage: The more rail line mileage a company has in its control, the more access it has to deliver goods. More mileage also means less congestion on its tracks, so goods move faster.
2. Dividend history: Railroad companies are known for steady dividends. Whether you want a growth stock or not, you should always look for a company to hold or increase its dividends over time in this industry.
3. Implementing technology: The railroad industry is consistently updating its technology. To stay competitive, companies must keep abreast of more efficient ways to transport goods and conduct operations.
4. Economic health: Stocks tend to grow with the economy, and with railroads serving as the backbone of the logistics industry, poor economic performance could lead to poor stock performance in this sector.

Unless you bought during the lowest point in the March lows, you won’t find any railroad stocks under $5. You can still find great deals with leverage for capital gains and dividends. We may see new highs for the entire industry as the U.S. goes back to work after social distancing. If not, investors have a steady dividend to fall back on.

Frequently Asked Questions