Norfolk Southern Stock Dividend Review & Stock Analysis

Norfolk Southern Stock Dividend Growth Is Resilient

Let’s jump into the industrial sector by taking a look at the Norfolk Southern stock dividend.

When it comes to investing, diversification is very important.  Even more so for dividend stock investors. Because many good quality dividend stocks are clustered in just a few sectors.

Industrial companies, like Norfolk Southern, are heavily exposed to the ups and downs of economic cycles. As a result, they are not your typical dividend stock favorites.

But Norfolk Southern (NYSE: NSC) is one dividend stock that I like. And have owned for many years.

So certainly, I will have some thoughts on the Norfolk Southern stock dividend. Including dividend growth, and a view on dividend safety.

Moving right along…

Norfolk Southern stock dividend review

Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.

Norfolk Southern Stock Dividend Review – Key Takeaways

NSC is a well-run company with a long history.  It has large barriers to entry that protect its financial viability. However, the company is susceptible to the shorter-term ups and downs of economic cycles.

The Norfolk Southern dividend looks safe. And the dividend is well covered based on earnings and cash flow.

Both earnings and Norfolk Southern dividend growth have been very strong in recent years. However, the company’s dividend yield is a bit low for my liking.

Furthermore, it is typical for dividend growth to slow temporarily. During times of economic uncertainty.

Next, a couple of quick “housekeeping notes”…

Are you interested in investing in transportation companies? Then, be sure to check out: this UPS dividend stock review. The company is an elite logistics and transport business and has benefited from the growth in e-commerce.

Or, check out dozens of other dividend stocks and dividend investing articles. They are summarized on our dividends resources page. For your convenience.

On the other hand, if you came for additional information on Norfolk Southern stock and its dividend, let’s go…

Norfolk Southern Company Background

NSC operates nearly 20,000 miles of railroad. They do so in more than 20 states and the District of Columbia.  And serve every major container port in the eastern United States. 

They also have the most extensive intermodal network in this region. And provide efficient connections to other rail carriers.

NSC is a major transporter of industrial products. Some of these products include coal, automotive parts, automobiles, chemicals, metals, and construction materials.

Source: Norfolk Southern Corporate Profile

NSC Strategic Plan

To grow, Norfolk Southern looks to improve shipping volumes in 3 main areas:

  • Merchandise
  • Intermodal (train to truck and truck to train)
  • Coal

Efforts to grow revenues can be significantly influenced by overall economic activity. And, commodity prices. Shipping demand is therefore subject to many factors that are out of the company’s control.

So, Norfolk’s growth strategy also focuses on operational performance. They have several major initiatives to improve profit per sales dollar that include:

  • Improved tons delivered per employee, train and locomotive
  • Higher utilization of cars in service
  • Enhanced service & delivery for customers

Efforts in these areas have deliver higher profits.

Norfolk Southern Stock Symbol

Finally, Norfolk Southern stock trades on the New York Stock Exchange. It operates using the ticker symbol NSC (NYSE: NSC).

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Okay. That’s enough about the company’s operations. Let’s do the stock research next to uncover all of the facts and figures about the Norfolk Southern stock dividend.

Norfolk Southern Stock Dividend Per Share

The annual forward dividend is the last dividend payment approved by the company. Multiplied by the number of times a stock pays dividends each year.

The dividend per share results in a dividend yield. When it is divided by the current stock price.

Norfolk Southern Stock Dividend Yield

The Norfolk Southern dividend yield is typically low. Usually less than 2%. Unless the stock price encounters significant weakness.

Stock dividend yields can change quickly and frequently. They have an inverse relationship with the stock price.

So, rising stock prices mean falling dividend yields. And, vice versa.

How Often Does NSC Pay Dividends?

Norfolk Southern pays dividends to shareholders on a regular basis. Specifically, every 3 months or 4 times per year.

That makes NSC a quarterly paying dividend stock. And each of those dividend payments is one-fourth of the annual dividend rate.

When Does Norfolk Southern Pay Its Dividends?

As a shareholder, you will receive regular dividend payments from NSC in the same months each year. Those months are March, June, September, and December.

Norfolk Southern’s dividend payment dates are typically on the 10th day of these months. Unless that day falls on the weekend. Then the dividend is paid the following business day.

Norfolk Southern Ex-Dividend Date

To receive the next NSC dividend payment, you must complete your purchase before the ex-dividend date.

First of all, NSC’s ex-dividend date usually falls in the month PRIOR to when it pays dividends. Furthermore, the ex-date mostly falls during the first week of those months.

Knowing Your Dividend Dates

Key dividend dates are slightly different each quarter. So, it’s best to check NSC’s dividend information on its investor relations website.   There you can get the exact date for each future dividend payment. After the company approves and announces it.

On the other hand, most dividend stock investors, like you and I, buy and hold our dividend stocks. By doing so, we receive every future dividend NSC pays out.

Thus, there is no need to worry about the different dividend dates each quarter. As an ongoing shareholder, the most important date is the payment date. That’s when we get our cash.

Norfolk Southern Stock Dividend History

Norfolk Southern Corporation (NSC) was created as a holding company in 1982. It acquired Norfolk & Western Railway and Southern Railway to begin operations under the new name.

NSC has paid regular quarterly stock dividends since 1982. Never having missed a quarter.

Furthermore, Norfolk Southern typically increases its dividend rate per share every year.

On the other hand, as the Norfolk Southern dividend payout ratio rose during 2015, the company temporarily slowed the rate of dividend increases in 2016.

So, my point is this. When the company encounters financial challenges. Management slows dividend growth.

But this pattern of stop and start dividend growth doesn’t mean that NSC hasn’t increased its dividend rapidly.

Let’s talk about dividend growth next…

Norfolk Southern Stock Dividend Growth

The company’s dividend growth has been very strong.

And it is not uncommon for management to increase the dividend rate by at least 8%. When they feel they have the financial resources to do so.

Norfolk Southern Dividend Policy Statement

I appreciate it when a company states its dividend policy. And Norfolk Southern has done that in the past.

They have gone on record that the goal for the dividend is to payout 35%-40% of accounting earnings.

But understand that dividends are discretionary. And a company can change its dividend policy at any time.

Furthermore, Norfolk Southern is an economically sensitive company. It has large capital investment requirements.

As a result, a relatively low dividend payout ratio is justified while still rewarding shareholders with consistent dividends.

While their stated target payout ratio is low. It looks appropriate to me.

Norfolk Southern Revenue Trend

The company’s revenue trends in a fairly tight range.

It is negatively affected during recessions.  Also, as demand drops for coal shipments.

On the other hand, the company’s revenue growth is positively affected by intermodal transportation.  The intermodal volumes come from consumer spending, e-commerce, and shifts in demand from the trucking market.

Norfolk Southern Dividend Payout Ratio Based On Earnings

Norfolk Southern has been able to grow profits through price increases.  And cost controls over labor, equipment, and fuel.

In addition, the 2017 tax act has lowered taxes and increased income. At least until the tax laws change again!

And with higher earnings. Come larger dividend payments.

I like fast dividend growth. But only if it is supported by earnings and cash flow.

Because a lower dividend payout ratio is generally better.  It shows the company has ample room to raise the dividend in the coming years.  Or, withstand an earnings drop without having to reduce the dividend.

Furthermore, a lower dividend payout ratio is wise for an industrial company. Since their business requires large capital investment. And, is subject to changing economic conditions that are out of their control.

Norfolk Southern Dividend Payout Ratio And Free Cash Flow

Since the company has large capital investment requirements. Cash leftover from NSC’s operations after spending on capital investments becomes available for dividends. And other purposes too.

That is the definition of free cash flow. And it is from free cash flow that a company’s recurring dividends are paid.

It makes sense that Norfolk Southern has large amounts of capital outlays. Locomotives, rail cars, and railroad tracks cost a lot of money to purchase and maintain.

Even so, our dividend payments consume only a sustainable amount of NSC’s free cash flow.

Finally, understand that cash flow is important. It is a good cross-check against accounting earnings for evaluating the dividend and its safety.

Norfolk Southern Business Fundamentals

When slowdowns caused by economic conditions have a negative impact on Norfolk Southern’s business activity. Management takes action.

By operating a company with good cash management practices, the impact on free cash flow is limited. And supports the company’s decisions to raise the dividend. Even in difficult times.

But let’s think long-term. What does it hold for Norfolk Southern dividend growth…

Norfolk Southern Dividend Growth Projection

For my financial planning purposes, I like to make a dividend growth forecast for all of my dividend stock holdings. I take into account several factors discussed so far:

  • The historical dividend growth rate
  • Number of consecutive annual dividend increases
  • Company dividend policy
  • Dividend payout ratio based on earnings and cash flow
  • Cyclical nature of the business
  • Company growth strategy

Taking into account what I have learned thus far, I do not believe the NSC dividend will grow as rapidly as it has at times in the past. All it would take is for a recession to emerge. For dividend growth to be put on hold for a while.

I don’t expect any of that to happen. I see increasing dividends moving forward. As a result, I’m going to forecast a 6-7% long-term annual dividend growth rate.

Not entirely by coincidence, 7% annual dividend growth is what Norfolk Southern has been able to deliver over the past 20-30 years. A long period like this takes into account the ups and downs of multiple economic cycles.

Consistent dividend growth from dividend stocks like NSC is one of the reasons to invest in dividend stocks. At least, in my opinion.

Norfolk Southern Credit Rating

Knowing a company’s credit rating is important.  A good credit rating can make a big difference between companies that struggle. Versus those that hold their own during a recession.

A corporation’s credit rating is similar to how your credit score works. By the way, you can check yours for free using Credit Karma if you like.

Higher credit ratings mean lower risk to those who lend money.  Furthermore, higher ratings mean lenders will be more likely to get their loans paid back on time.

We are not lenders here at Dividends Diversify, we are investors in dividend stocks and dividend-paying ETFs.  However, it never hurts to check out a company’s creditworthiness. Because good credit supports dividend safety.

Norfolk Southern typically carries an investment grade rating.

The ratings are provided by the big rating agencies. Two that I follow are Moody’s and S&P.

Finally, investment-grade is what most consistent dividend-paying companies are rated.

Table 2: Credit Rating Evaluation Grid

Credit rating evaluation grid for each major rating agency

Norfolk Southern Debt To Equity Ratio

Norfolk Southern is successful at maintaining a modest debt to equity ratio.

I do not like dividend-paying companies that are heavily loaded with debt. And it does not appear that Norfolk Southern has an unmanageable debt load. Modest amounts of debt also enhance dividend safety.

So, let’s talk about dividend safety next.

Norfolk Southern Dividend Safety Evaluation

The dividend payments I collect are very important to me.

Most noteworthy, I do not want to hold a stock that may reduce its dividend. Even the most successful dividend investing approach will underperform when facing dividend cuts from portfolio companies.

As a result, I look at multiple factors to make a judgment on dividend safety:

  • Dividend payout ratio based on earnings
  • Dividend payout ratio based on free cash flow
  • Company dividend history
  • Stated dividend policy
  • Credit ratings
  • Debt to equity
  • Current and future business prospects

In all cases, it appears the Norfolk Southern dividend is safe from a reduction in the foreseeable future.

So, I expect to keep collecting the dividend payments as they currently stand on a per-share basis!

Plus more in the future. As NSC raises its dividend.

Norfolk Southern Stock Valuation

Let’s judge stock value using a dividend discount model…

NSC Dividend Discount Model

I like and use the single-stage dividend discount model. It considers several of the factors we have discussed thus far.

Including:

  • The current annual dividend payment
  • Projected dividend growth
  • My desired annual return on investment

Using these assumptions, the dividend discount model indicates NSC shares are overvalued at the time of this update.

But a stock’s valuation can change quickly. As share prices move up and down.

So, be sure to assess valuation and other key metrics for yourself. Before making an investment.

Norfolk Southern Dividend Stock Analysis – Wrap Up

NSC represents a relatively smaller size position in my dividend stock portfolio.  The stock is 1 of many solid investment options. We dividend investors have to consider.

Regardless, I intend to hold for the long term. And I would like to add to my position. But only at a lower more reasonable price. A price that suggests I’m getting a good value.

But waiting is okay with me. I like being patient.

Especially when receiving good investment returns from share price increases. And getting paid dividends while I wait.

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Author Bio, Disclosure, & Disclaimer: Please join me (Tom) as I try to achieve my goals, find my next place to live, and make the most of my money. But understand, I am not a licensed investment adviser, financial adviser, real estate agent, or tax professional. I’m a 50-something-year-old guy, CPA, retired finance professional, and part-time business school teacher with 40+ years of DIY investing experience. I’m just here because I enjoy sharing my findings and research on important topics. However, nothing published on this site should be considered individual investment advice, financial guidance, or tax counsel. Because this website’s only purpose is general information & entertainment. As a result, neither I nor Dividends Diversify can be held liable for any losses suffered by any party because of the information published on this blog. Finally, all written content is the property of Dividends Diversify LLC. Unauthorized publication elsewhere is strictly prohibited.

I own NSC stock and collect the Norfolk Southern Stock Dividend

4 thoughts on “Norfolk Southern Stock Dividend Review & Stock Analysis”

  1. Hi Tom,

    I agree with what you say. It sounds like a good diversification opportunity, but I also take a pause since it’s sensitive to economic conditions. (And I wonder if it would be affected by self-driving trucks).

    Like you, I would reserve only a small position for Norfolk Southern in my portfolio.

    Cheers,
    Miguel

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