In 1905, Charles Henry Robinson spotted a unique opportunity.
After moving west with his family to the North Dakota town of Grand Forks, he soon realized that settlers were in need of supplies. He founded a transportation company with the goal of delivering perishable products to consumers before they spoiled -- a difficult challenge in the horse-and-buggy days.
The company Robinson founded changed with the times, taking advantage of historic advances in the transportation industry. These advances included the first refrigerated truck (without ice) in 1939, the construction of the interstate highway system beginning in 1945, and the deregulation of the trucking industry in 1980.
Deregulation allowed the company freedom in setting its own rates. It also freed up the types of cargo that could be carried and the geographical areas in which the company could operate.
As it's known today, C.H. Robinson (Nasdaq: CHRW) has again changed with the times.
Unlike transportation industry titans FedEx (NYSE: FDX) or UPS (NYSE: UPS), C.H. Robinson does not own a fleet of trucks that transport goods. Instead, it specializes in logistics. Other companies hire C.H. Robinson to make their transportation services more efficient.
Because the company doesn't have to spend a bundle on equipment and maintenance, its return on invested capital averages more than 30 % -- the highest in the shipping industry.
|The sheer size of the company's network is difficult to compete with or replicate, giving C.H. Robinson "wide moat" status.|
On Aug. 26, C.H. Robinson's board of directors said the company will begin a $500 million accelerated share buyback program. This will include the repurchase of 15 million shares. Combined with an earlier authorization, the total repurchase agreement now stands at 23.7 million shares.
Here's what StreetAuthority expert Elliott Gue said recently about share buybacks in his Top 10 Stocks advisory:
In a way, buybacks are better than dividends...
I love to see dividends hit my account as much as the next investor. But in a regular brokerage account, dividends create a taxable event. Depending on where that cash was sourced from and your marginal tax rate, you could lose up to 39.6% of the dividend to Uncle Sam.
On the other hand, when a buyback happens, the tax man doesn't care. Instead, the value created by the buyback can continue to grow until you sell the shares. At that time you will only be responsible for the capital gains, which max out at 20% for investments held more than a year.
C.H. Robinson's announcement that it's increasing its share buybacks makes a great company even more attractive. But there are other reasons to like CHRW.
Earnings per share (EPS) have grown every year over the past nine years, from $0.67 per share in 2003 to $3.67 in 2012. This is a remarkable feat considering the turbulence the market has weathered in that time. During the height of the Great Recession in 2008 and 2009, C.H. Robinson managed to increase net income and its dividend while most companies in its industry were decimated by falling demand.
The sheer size of the company's network is difficult to compete with or replicate, giving C.H. Robinson "wide moat" status. The company has a customer base of more than 40,000 shippers, and its size allows it to negotiate lower transportation rates than small shipping companies could obtain on their own.
The company's network also gives it access to over 56,000 physical (asset-based) carriers. This represents an enormous advantage, as shipping continues to become more complex due to globalization and myriad international regulations.
The current dividend yield of 2.4% may seem underwhelming, especially with the yield on the 10-year Treasury closing in on 3%. But C.H. Robinson's combination of steady dividend increases combined with share buybacks make the stock a good investment for the long haul.
Compared with the overall market this year, CHRW has been lackluster, losing 9%. With a forward price-to-earnings (P/E) ratio of 18, the company is not in bargain territory, but it is in line with the S&P 500.
Risks to Consider: At 6, the price-to-book ratio is a little high for my taste, but it is only slightly higher than the industry average. There has recently been increased competition in non-asset transportation logistics. Increased competition, especially from FedEx and UPS, could cut into C.H. Robinson's market share.
Action to Take --> Because of its longevity, commitment to shareholder value, wide moat and cost-efficient business model, C.H. Robinson is the kind of company that should have a place in any long-term investor's portfolio.