KCS: Investing for Growth, Delivering ‘Meaningful’ Capital Returns

Kansas City Southern’s (KCS) Board of Directors on Nov. 10 approved updates to the railroad’s capital allocation policy.

KCS will continue to deploy available cash for capital projects and strategic investments (40%-50%) and for share repurchases and dividends (50%-60%). It will also, from time to time, “prudently use additional debt to support the revised policy and intends to increase its Debt-to-EBITDA ratio to the mid-2x range, consistent with its current ratings of BBB from Standard & Poor’s and Fitch Ratings and Baa2 from Moody’s.”

In connection with the move, the Board approved these actions:

• An increase in the quarterly dividend on KCS’s common stock from $0.40 to $0.44 per share. The Board declared a common stock dividend for this increased amount payable on Jan. 20, 2021, to stockholders of record at the close of business on Dec. 31, 2020. In April 2021, KCS will implement a quarterly dividend approach that targets a low 20% range payout.
• A new $3.0 billion share repurchase program, expiring Dec. 31, 2023. This new program replaces the $2.0 billion stock repurchase program announced in 2019—under which KCS has purchased about $1.4 billion of company stock, including the $500 million accelerated share repurchase agreement that was reported alongside its third-quarter 2020 earnings.

“Kansas City Southern’s revenue growth, margin improvement and cash flow generation this year have been remarkable given the economic and operational challenges we have faced,” President and CEO Patrick J. Ottensmeyer said. “Our plan to prudently increase the amount of capital returned to shareholders demonstrates management’s and our Board’s confidence in our strong growth prospects, ability to continue delivering on our long-range plan, and the long-term operational efficiencies and lower capital spend intensity created by our Precision Scheduled Railroading implementation.

“We believe today’s announcement continues to balance our objectives of delivering meaningful capital returns while investing in future growth opportunities and maintaining a desirable credit profile.”