Yahoo Finance Norfolk Southern (NYSE:NSC) Is Due To Pay A Dividend Of $1.35
The board of Norfolk Southern Corporation (NYSE:NSC) has announced that it will pay a dividend of $1.35 per share on the 20th of May. This means the annual payment is 2.3% of the current stock price, which is above the average for the industry.
See our latest analysis for Norfolk Southern
Norfolk Southern's Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. This is a pretty unsustainable practice, and could be risky if continued for the long term.
Looking forward, earnings per share is forecast to rise by 158.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Norfolk Southern Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was $2.08 in 2014, and the most recent fiscal year payment was $5.40. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
Dividend Growth Is Doubtful
Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. In the last five years, Norfolk Southern's earnings per share has shrunk at approximately 9.3% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.
The Dividend Could Prove To Be Unreliable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 4 warning signs for Norfolk Southern you should be aware of, and 1 of them can't be ignored. Is Norfolk Southern not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
