Dividend Increase | Norfolk Southern (NSC)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
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 30th the Board of Directors at Norfolk Southern (NSC) approved an increase in the quarterly dividend payment.  The dividend was increased from $0.99 to $1.09 which is an excellent 10.1% increase.  Norfolk Southern is a Dividend Challenger with 5 consecutive years of dividend growth.  Shares currently yield 1.69% based on the new annualized payout.

The new dividend will be payable August 20th to shareholders of record as of August 9th.

That was a great dividend increase in its own right, but it's even better since Norfolk Southern announced a 5.3% increase back in January as well.  Compared to the 3Q payment from 2020 the increased dividend is a whopping 16.0% higher!

Since I own 24.70 shares of Norfolk Southern in my Roth, this raise increased my forward 12-month dividends by $9.88.  I first purchased shares in 2012 and I've now received 11 dividend raises with total organic dividend growth coming in at 118%.

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

Norfolk Southern doesn't have the cleanest dividend history with a cut back in 2001 before embarking on a 14 year streak of annual raises.  The streak took a one year break in 2016 but picked right back up in 2017.  

Dating back to 2002 when their streak of paying the same or higher dividend each year resumed there's been 20 year over year periods with annual dividend growth ranging from 0.0% to 41.7% with an average of 15.9% and a median of 13.4%.

There's been 16 rolling 5-year periods over that time with annualized dividend growth ranging from 4.7% to 32.4% with an average of 16.2% and a median of 11.5%.

There's also been 11 rolling 10-year periods with annualized dividend growth ranging from 9.6% to 22.3% with an average of 15.0% and a median of 13.3%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1993 can be found in the following chart.  

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

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.

Norfolk Southern's 5-year average forward dividend yield is 1.94% which corresponds to a share price of $225 based on the new annualized payout.  

I consider the fair value range based on dividend yield theory to be the 5-year moving average yield +/- 10%.  That gives a fair value range of $204 - $249 and suggests that shares are trading above the upper end of fair value.

Wrap Up

This raise increased my forward dividends by $9.88 with zero effort on my part.  That's right, absolutely nothing to contribute to their operations.  Based on my Roth IRa's current yield of 2.02% this raise is like I invested an extra $490 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.

I've now received 9 raises from the companies in my FI Portfolio increasing my forward-12 month dividends by $428.36.

My FI Portfolio's forward-12 month dividends are $8,432.91  Including my FolioFirst portfolio's forward dividends of $174.87 brings my total taxable accounts dividends to $8,607.78.  My Roth IRA's forward 12-month dividends are $840.97.  My Rollover IRA's forward dividends are $3,799.31.  Across all accounts I can expect to receive $13,248.06 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?  What about the other railroads?

Please share your thoughts below.