Dividend Increase | Norfolk Southern

Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Norfolk Southern for another dividend increase!

There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On July 25th the Board of Directors at Norfolk Southern (NSC) approved an increase to the quarterly dividend payment.  The dividend was increased from $0.86 up to $0.94 per share.  That's a solid 9.3% increase.  Norfolk Southern has increased their dividend payment for 3 consecutive years and has paid the same or higher dividend for 18 consecutive years.  Shares currently yield 1.95% based on the new annualized payout.

The newly increased dividend will be payable on September 10th to shareholders of recorded as of August 5th.

Since I own 23.821 shares of Norfolk Southern in my Roth IRA, this raise increased my forward 12-month dividends by $7.28.  This is the 9th dividend increase I've received from Norfolk Southern since initiating a position in September 2012.  

A full screen version of this chart can be found here.

I'm obviously happy about that 9% increase; however, I'm ecstatic that it's coming on the heels of a 7.5% increase announced in January.  That puts the year over year increase at a huge 17.5%!  

As you can see in the above chart Norfolk Southern's dividend history isn't exactly the model of consistency.  There was a cut back in the early 2000's.  There was also a 6 quarter pause in growth from March 2009 to August 2010 as well as an 8 quarter pause from February 2015 through March 2017.  Despite the freezes and the cut, dividend growth has still been fantastic due in large part to the local monopoly power of the railroad industry.  Of the 17 rolling 10-year periods, Norfolk Southern's dividend growth has ranged from -7.0% to 22.3% with a median annualized growth rate of 9.6%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1994 can be found in the following chart.  

A full screen version of this chart can be found here.

*2019's dividend growth assumes the new quarterly payout of $0.97 per share is maintained for the rest of 2019.

Based on dividend yield theory, Norfolk Southern's current yield of 2.17% is lower than the 5 year moving average of 2.23%.  This suggests that Norfolk Southern is on the high end of fair value or potentially overvalued.  If Norfolk Southern were to trade at the 5 year average yield of 2.23% the share price would need to decline ~12.5% to a share price around $168.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Wrap Up

This raise increased my forward dividends by $7.62 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.84% this raise is like I invested an extra $268 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

My FI Portfolio's forward-12 month dividends remain at $7,160.75.  Including my FolioFirst portfolio's forward dividends of $99.94 brings my total taxable accounts dividends to $7,260.69.  My Roth IRA's forward 12-month dividends increased to $551.59.  My Rollover IRA's forward dividends remain at $1,992.89.  Across all accounts I can expect to receive $9,805.17 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Norfolk Southern's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Norfolk Southern?  

Please share your thoughts below.