NEW YORK (TheStreet) -- While the S&P 500 has averaged returns of about 10% a year over the long run, one trucking company, is expected to deliver annual returns much better than that. C.H. Robinson (CHRW) is on track to deliver returns of 11.9% on average over the next several years.
Founded in 1905, C.H. Robinson has grown to reach a market cap in excess of $9 billion and has 281 offices in 36 countries and more than 12,600 employees.
With its dividends increasing every year since the company went public in 1997, C.H. Robinson ranks as a Nasdaq Dividend Achiever. Earnings per share have declined only once since 1999. In short, C.H. Robinson has realized rapid growth over the last 18 years and has many opportunities to continue doing so.
Controlling just 2.2% of the truckload industry and 2.3% of the less-than-truckload (or LTT) industry in North America, the company nonetheless ranks as one of the market leaders.
Future growth for C.H. Robinson will come from a mix of organic growth and share repurchases. C.H. Robinson's management is targeting a payout ratio of 45% to 50%.
The company is committed to returning cash to shareholders through share repurchases and dividends. This equates to a dividend yield of 2.4%.
C.H Robinson cross-sells its services to its large base of customers, with its top clients using on average about three services. C.H. Robinson can grow organically by providing more logistics services to its current customer base.
In addition to achieving growth in North America, C.H. Robinson is also realizing success in Europe and is the leading third-party transportation provider there. C.H. Robinson's management expects Europe to be its fastest-growing market in the future with better than a 15% growth rate projected.
Over the last decade, C.H. Robinson has had compounded earnings per share of 11.3% a year. The firm is targeting annual earnings-per-share growth of 7% to 12% for the next several years.
Thus, shareholders can expect returns of 9.4% to 14.4% a year -- or 11.9% on average -- with the returns to be generated from dividends (about 2.4%) and the rest from earnings-per-share growth.
C.H. Robinson's business model is built around working with a large number of small carriers. Last year, 84% of truckload shipments were accomplished with small-carrier companies with fewer than 100 trucks.
Working with a large network of smaller carriers lets C.H. Robinson benefit from competition within the carrier market. The company relies on its extensive network of carriers to reduce prices for customers and provide better service options.
C.H. Robinson's competitive advantage also comes from having one of the largest networks of independent motor carriers in North America and it's adopting a similar strategy in Europe.
A Recent Acquisition
In its most recent quarter, the company's earnings per share climbed 15.9% over the same period a year ago and in excess of management's rosiest long-term expectations. Growth came, in part, from the company's recent acquisition of Freightquote.com for $365 million in cash.
Freightquote.com's popularity with e-commerce customers will likely continue to be accretive for C.H. Robinson. The acquisition also further adds to C.H. Robinson's network of truckload and less than truckload carriers.
C.H. Robinson has seen earnings per share decline only once since 1999 and performed well through recessions. The company managed to grow its earnings per share each year through the Great Recession.
This company's price-to-earnings ratio is in line with the S&P 500's: The S&P 500 has a price-to-earnings ratio of 20.3, while C.H. Robinson's P/E is 20.25. The company's stock price at Tuesday's market close was $66.77, representing a rise of .66% for the day.
The company appears undervalued relative to the S&P 500 at current prices.
In short, the company has a long growth runway ahead in the highly fragmented third-party logistics industry in North America and Europe. C.H. Robinson makes in intriguing addition for investors for dividend-growth investors looking for exposure to the transportation industry.