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 January 25th the Board of Directors at Norfolk Southern (NSC) approved an increase in the quarterly dividend payment.  The dividend was increased from $1.09 to $1.24 which is an excellent 13.8% increase.  Norfolk Southern is a Dividend Contender with 5 consecutive years of dividend growth.  Shares currently yield 1.85% based on the new annualized payout.

The new dividend will be payable February 21st to shareholders of record as of February 4th.

Since I own 24.9 shares of Norfolk Southern in my Roth IRA, this raise increased my forward 12-month dividends by $14.94.  This is the 12th raise that I've received from Norfolk Southern since initiating a position in 2012.  Total organic dividend growth over that time is an excellent 148.0%.

Even better is that Norfolk Southern announced an increase in July of last year as well.  Compared to the 1Q 2021 payment of $0.99 the new dividend is a remarkable 25.3% higher.

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

Norfolk Southern did have a dividend cut back in 2001 after 3 years of holding the payment steady.  However, dividend growth returned in 2002 and has come every year since except for a freeze in 2016.  

Dating back to 2002 year over year dividend growth has ranged from 0.0% to 41.7% with an average of 16.1% and a median of 15.4%.

Over that same period there's been 17 rolling 5-year periods with annualized dividend growth ranging from 4.7% to 32.4% with an average of 16.1% and a median of 12.0%.

There's also been 12 rolling 10-year periods with annualized dividend growth ranging from 9.6% to 22.3% with an average of 14.6% and a median of 11.8%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates for Norfolk Southern 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 3 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 3-year average forward dividend yield is 1.80% which corresponds to a share price of $275 based on the new annualized payout.  

I consider the fair value range based on dividend yield theory to be the 3-year moving average yield +/- 10%.  That gives a fair value range of $251 - $306 and suggests that shares are trading on the upper end of fair value.

Another quick and dirty valuation method is the Gordon Growth or Dividend Discount model.  This valuation method is based solely off the expected future dividends as well as your required return.  Based on a 10% discount rate and assuming Norfolk Southern can maintain 8% annual dividend growth shares are worth around $268 per share.

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

However, reducing the estimated growth rate to 7%, but maintaining the 10% discount rate lowers the fair value to $177.  

Wrap Up

This raise increased my forward dividends by $14.94 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 2.10% this raise is like I invested an extra $711 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.

This is the 3rd raise that I've received from my Roth IRA holdings increasing my forward 12-month dividends by a combined $26.93.

My FI Portfolio's forward-12 month dividends are $9,710.50  Including my FolioFirst portfolio's forward dividends of $178.77 brings my total taxable accounts dividends to $9,889.27.  My Roth IRA's forward 12-month dividends are $923.04.  My Rollover IRA's forward dividends are $4,102.47.  Across all accounts I can expect to receive $14,914.78 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.

Have you received any dividend raises in 2022 so far?  Do you own shares of Norfolk Southern or any other railroads?

Please share your thoughts below.