KCS unveils new capital allocation policy

Kansas City Southern yesterday announced that its board approved a new capital allocation policy, calling for cash to be deployed to capital projects, strategic investments, the repurchase of shares and dividends.

Under the new policy, 40 to 50 percent of cash will be deployed to capital projects and strategic investments, while 50 to 60 percent will go toward share repurchases and dividends, KCS officials said in a press release.

In addition, the company plans from time to time to use additional debt to support the new policy and intends to manage its debt-to-EBITDA ratio in the low 2x range consistent with its current ratings of BBB from Standard & Poor’s and Fitch Ratings and Baa2 from Moody’s.

Moreover, the board approved an increase in the quarterly dividend on KCS common stock to 40 cents from 36 cents per share payable Jan. 22, 2020, to stockholders of record as of Dec. 31.

The board also approved a new $2 billion share repurchase program, expiring Dec. 31, 2022. The new program replaces the $800 million stock repurchase announced in 2017 under which KCS purchased $741 million of company stock.

“Kansas City Southern is pleased to announce a new capital allocation policy that balances our objectives of: a) investing in future growth opportunities; b) delivering meaningful capital returns to our shareholders; and c) maintaining a desirable credit profile,” said KCS President and Chief Executive Officer Patrick Ottensmeyer.

Also yesterday, the board declared a dividend of 25 cents per share on the outstanding KCS 4 percent non-cumulative preferred stock. The dividend is payable on Jan. 1, 2020, to stockholders of record as of Dec. 31.