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It is a well-known fact that expenses on oil are a key input cost for any transportation company. The price of oil has increased roughly 12% in a month’s time, and it has recently been seen trading at around $90 a barrel. This surge in cost naturally hurts bottom-line growth of transportation companies.

Oil prices have been on a tear since Russia and Saudi Arabia extended voluntary supply cuts through the end of the current year. Adding to the woes, expenses are high on the labor front as well, courtesy of the multiple pay-related deals being inked in the space lately. This is because the bargaining power of various labor groups has increased, given the high travel demand and labor crunch in the post-COVID-19 world.

High costs apart, supply-chain disruptions continue to dent transportation stocks. The inflationary environment, together with supply-chain tightness, is pushing costs higher. Even though the Federal Reserve held interest rates steady at its meeting this month, it signaled another hike this year to tackle stubborn inflation.

Lackluster freight demand also represents a major headwind for transportation stocks. Highlighting the weak freight demand, the Cass Freight shipments Index declined 10.6% year-over-year in August. This measure deteriorated year-over-year in six of the eight months reported this year, confirming the overall declining trend.

But do the challenges discussed above imply that investors interested in the transportation sector should shun investing in this key sector? The answer is a firm no. We believe dividend-paying transportation stocks should be on an investor’s watchlist to withstand headwinds and volatility.

We have identified three stocks from the Zacks Transportation sector to keep an eye on in this environment: FedEx Corporation (FDX - Free Report), Expeditors International of Washington (EXPD - Free Report), and Delta Air Lines (DAL - Free Report). All three stocks currently carry a Zacks Rank #3 (Hold).

Year-To-Date Price Performance

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Adding dividend stocks to one’s basket shows prudence, as these provide an avenue of steady income and a cushion against market risks. Needless to say, investors are always on the lookout for companies with a consistent and incremental dividend history.

FedEx Corporation (FDX)

FedEx’s efforts to reward its shareholders even in these difficult times are praiseworthy. FDX is also active on the buyback front. During fiscal 2022, FedEx repurchased shares worth $2.2 billion. FedEx's liquidity position is also solid. FDX’s efforts to cut costs are driving its bottom line.

Despite the global weakness, FDX's first-quarter fiscal 2024 earnings per share exceeded expectations, driven by its cost-cutting measures. FDX surpassed the Zacks Consensus Estimate for earnings in each of the last four quarters, by an average of 16.94%.

The Zacks Consensus Estimate for FDX’s current fiscal-year earnings suggests growth of 1.62% from the year-ago reported number. The company pays out a quarterly dividend of $1.26 ($5.04 annualized) per share, offering a 1.92% yield at the recent stock price. FDX’s payout ratio is 31%, with a five-year dividend growth rate of 13.15%.

Expeditors International of Washington, Inc. (EXPD)

Expeditors is based in Seattle, WA. The freight forwarder’s efforts to reward its shareholders are commendable. EXPD’s liquidity position is encouraging, too. EXPD outshined the Zacks Consensus Estimate in two of the past four quarters (missing the mark in the other two).

The company pays out a semi-annual cash dividend of 69 cents ($1.38 annualized) per share, offering a 1.22% yield at the recent stock price. EXPD’s payout ratio is 21%, with a five-year dividend growth rate of 9.81%.

Delta Air Lines, Inc. (DAL)

Delta is an airline heavyweight based in Atlanta. Improved air travel demand, particularly on the domestic front, has been aiding Delta. Passenger revenues, which account for the bulk of the top line, have been very strong, with people taking to the skies again.

In June, Delta’s management announced the reinstatement of its quarterly dividend of 10 cents per share (40 cents annualized) after a COVID-19-induced hiatus, offering a 1.04% yield at the recent stock price.

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