Norfolk Southern (NSC) Gives Shareholders a 3.4% Raise (Finally)

Back in October 2016, Norfolk Southern (NSC) was dropped from the U.S. Dividend Contenders list of stocks.

After 14+ years of consistently raising their dividend, it remained unchanged for over 2 years (9 quarterly dividend payments) … which prompted the action.

Norfolk Southern is one of the stocks we own in our dividend growth portfolio … which is called the Money Sprout Index. We initially purchased 12 shares of NSC stock back in late 2012 and another 12 shares a year later in 2013.

For over the past year, we have been concerned about the lack of dividend growth from the company. After all … we rely on dividend growth (along with DRiP and new investments) to help increase our annual income.

The good news is that the company finally announced a dividend increase.

We Got 3.4% Raise

Norfolk Southern just announced an annual dividend increase. This is the companies first increase since 2015.

Starting in a month, we will receive $0.61 in dividends for each share that we own … instead of $0.59 for the past 9 quarters. It is not the growth that we like to see year to year, however the company finally raised their dividend after leaving it unchanged for several quarters.

This latest increase bumps the annual dividend for NSC up to $2.44 per share compared to $2.36 last year.

Overall, that is a 3.39% increase in dividend income.

How Much Extra Income?

This latest dividend increase has pushed our 12 month forward dividend income for NSC up to $64.04, compared to $61.94 last year.

That is an annual dividend income increase of $2.10

This is another reminder that our dividend income stream is constantly growing without any extra work from us.

For example, we have recently discussed raises from several other companies including – Realty Income Corp (O), Cincinnati Financial, Sysco Corp, and Consolidated Edison (ED).

Whether they are large or small, all of these increases can really add up over the months and years.

With this latest increase by Norfolk Southern, along with recent stock purchases and dividend reinvestment … our annualized forward dividend income has risen to $2,268.38.

Dividend Growth for NSC

We have owned shares of Norfolk Southern 5+ years now. Most years we got a raise from the company, except in 2016. The company left their dividend unchanged.

However, this year the company took the first step in giving out raises by increasing their dividend.

Despite the unchanged dividend last year, we have still managed to build a yield on cost of 3.63% for the company. Past company raises and dividend reinvestment has helped to push our yield on cost up for this stock!

Take a look at the annual dividend payments since 2012 (when we purchased our shares) –

  • 2012 – $1.94
  • 2013 – $2.04
  • 2014 – $2.22
  • 2015 – $2.36
  • 2016 – $2.36
  • 2017 – $2.44 (projected)

Note – The 2017 dividend has been adjusted to reflect a $.61 quarterly dividend throughout the year.

As you can tell from the numbers above, NSC dividends have been raised consistently – except in 2016. Overall, the dividend growth has been a little slower than we would like to see.

Typically, we look for stocks with a 5-year or 10-year dividend growth rate of 6% or higher.

Here are a few average growth rates for shares of Norfolk Southern

  • 1 Year DGR – 3.39% (2016 to 2017)
  • 3 Year DGR – 3.23% (2014 to 2017)
  • 5 Year DGR – 4.73% (2012 to 2017)

Note – Since we have owned shares of NSC for the past 5 years … I did not include the 10 year growth rate.

Overall, the dividend growth of the company has been hovering around 3%-4% since we purchased over 5 years ago.

It is a good sign that NSC has started to increase their dividend again in 2017.

Norfolk Southern – Buy, Sell, or Hold?

We started buying shares of Norfolk Southern back in 2012 and 2013 in two different lump sum investments.

Since that time, we have earned $205.92 in dividends from the company and added an additional 2.246 shares through DRiP.

Here are a few stats from over the years of buying stock in Norfolk Southern

  • Total Investment – $1,705.14
  • Shares Purchased – 12.000
  • Dividends Earned – $205.92
  • DRiP Shares – 2.246

We have not actively purchased any new shares of NSC (other than DRiP) since 2013.

At the time of this writing, Norfolk Southern does not meet our stock screen criteria based on the following metrics –

  • Current Yield – 2.03%
  • Payout Ratio – 43.6%
  • P/E Ratio – 17.5

Even with the latest dividend bump, the current yield is almost below 2.0%. Factor in the frozen dividend in 2016, and we consider Norfolk Southern to be a HOLD.

Despite concerns about the dividend, there is a silver lining to our shares of NSC – capital gains. Our average price per share is about 1/2 the current price of the stock. So without any dividends factored in, we have almost doubled the value of our initial purchase.

For now … we will monitor the dividend activity over the next 12 months for the company. Any dividend cuts and we will immediately sell our shares. A frozen dividend in 2018 could also trigger a sale.

In the meantime, we will hold our current shares and continue with the DRiP.

Full Disclosure – At the time of this writing, we owned shares in the following stocks noted in this post – CINF, ED, NSC, O, and SYY. The material above is not a recommendation to buy. Please do your own research on a company before deciding to invest.

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