The year 2021 witnessed a gradual reopening of economies with the easing of COVID-related restrictions. As a result, economic activities gained pace, which served the widely-diversified transportation sector rather well. The improvement can be gauged by the fact that the Zacks Transportation sector gained 9.1% in the year gone by.

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Widespread vaccination programs contributed to the gradual northward movement in economic activities, as people ventured out with more confidence and less fear of getting infected.

Yet, with the emergence of the highly contagious Omicron variant, COVID-19 cases are again rising exponentially in most countries across the globe, including the United States. The resultant volatility and uncertainty are likely to persist at least in the near term. Given this scenario, investors interested in the transportation sector are advised to invest in stocks that offer a steady flow of income irrespective of market behavior. Stocks like Expeditors International of Washington (EXPD Quick QuoteEXPD - Free Report) , United Parcel Service (UPS Quick QuoteUPS - Free Report) , and FedEx Corporation (FDX Quick QuoteFDX - Free Report) fit the bill and should grace the portfolios of investors.

Challenges Facing Transports as we Welcome 2022

Airlines, belonging to this sector, had to cancel multiple flights, particularly since the Christmas Eve, due to Omicron-induced staffing shortage and unfavorable weather. The plethora of flight cancellations upset the holiday air travel plans of many Americans. With employees falling sick due to this highly transmissible COVID-19 variant, airline operations have taken a massive hit, which has compelled some notable airline players to trim their flight schedules.

Apart from the spike in infection, supply-chain woes pose another challenge to the U.S. economy. For example, similar to the last few quarters, supply-chain disruptions and a tight labor market hurt the recently released second-quarter fiscal 2022 results of FedEx. Labor shortage dented quarterly results by $470 million, with the ground unit bearing the majority of these costs (to the tune of $285 million).

More recently, FedEx’s management warned of shipment delays due to Omicron-led labor crunch and severe winter weather across the country. The pandemic-driven rise in online shopping is not only boosting FedEx’s shipment volumes but also straining its logistics networks and causing shipment delays. Supply chain woes are also hurting many other transportation players like railroads.

Dividend Growth Stocks Offer Respite

With the above-mentioned challenges likely to haunt the transportation sector at least in the near term, the question is whether investors should shun the stocks in the sector altogether. The answer is a categorical no. In this era of uncertainty, investing in dividend growth stocks is a prudent move. After all, these stocks boast solid fundamentals and are unfazed by any market gyrations.

As investors prefer an income-generating stock, a high dividend-yielding one is much coveted. Needless to say, they are always on the lookout for companies with a consistent and incremental dividend history.

Below we present three transportation stocks that have announced dividend hikes in 2021, even in the coronavirus-scarred scenario, thereby highlighting their financial prosperity. These stocks also possess a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have a market capitalization in excess of $20 billion. You can see the complete list of today’s Zacks #1 Rank stocks here.

Expeditors, having a market capitalization of $21.7 billion, is our first pick. This Seattle, WA-based freight forwarder is currently a Zacks #1 Ranked player. EXPD is being bolstered by upbeat airfreight revenues. Similar to the first three quarters of 2021, we expect airfreight revenues to aid Expeditors’ fourth-quarter 2021 results (scheduled to be out on Feb 22, 2022) as well.

Shares of Expeditors have surged 36.4% in a year’s time. In May 2021, Expeditors announced an 11.5% hike in its semi-annual cash dividend, taking the total to 58 cents per share. The company has an impressive record with respect to utilizing shareholders’ money. The optimism surrounding the stock is evident from the 7.3% northbound revision of the Zacks Consensus Estimate for earnings for the current year over the past 60 days.

UPS: The exponential e-commerce growth rate in the current scenario is a huge plus for Atlanta-based UPS, which currently carries a Zacks Rank #2 and has a market cap of $189.6 billion. In February 2021, UPS' board approved a 1% increase in its quarterly dividend to $1.02 per share. In the first nine months of 2021, UPS paid dividends worth $2.6 billion. Robust free cash flow generation by UPS is a major positive and is leading to an uptick in shareholder-friendly activities.

Primarily owing to e-commerce surge, UPS’ shares have gained 34.8% in a year’s time. Similar to the first three quarters of 2021, we expect upbeat demand for e-commerce-related package deliveries to aid UPS' fourth-quarter 2021 results (scheduled to be out on Feb 1) as well. Over the past 90 days, the Zacks Consensus Estimate for 2022 earnings has moved 3.81% north.

FedEx: FedEx is gaining from tailwinds like favorable pricing and a strong demand scenario. We are also pleased with the company’s efforts to reward shareholders even in these difficult times. In June 2021, FedEx raised its quarterly dividend by 10 cents to 75 cents per share (or $3 annually). FDX is also active on the buyback front. Robust free cash flow generation by FDX is a major positive and is leading to an uptick in shareholder-friendly activities.

With the easing of labor woes, FDX has raised its earnings guidance for fiscal 2022 (ending May 31, 2022). FedEx currently carries a Zacks Rank #2 and has a market capitalization of $69.95 billion. FDX’s shares have gained 7.6% in a year’s time. The optimism surrounding the stock is evident from the 7% northbound revision of the Zacks Consensus Estimate for fiscal 2022 earnings over the past 60 days.