Last update on 2024-06-27

Norfolk Southern (NSC) - Dividend Analysis (Final Score: 6/8)

Norfolk Southern (NSC) dividend analysis scored 6/8 using an 8-criteria system. Assessing performance and stability for dividend-seeking investors.

Short Analysis - Dividend Score: 6

We're running Norfolk Southern (NSC) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield measures the dividend income as a percentage of the stock price.

Norfolk Southern's dividend yield of 2.2845% surpasses the industry average of 1.47%, indicating a stronger return on investment for shareholders seeking dividend income. Analyzing the historical data, NSC's yield has generally fluctuated but has remained above the industry average in many years, notably hitting 3.4874% in 2015. The high yield is a positive trend for potential investors focused on income, despite some volatility. Additionally, this yield reflects positively in an environment where consistent dividends are prized.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate criterion examines whether a company’s dividends per share have increased by an average of more than 5% annually over a specified period, typically introducing stability and growth in shareholder returns.

Norfolk Southern (NSC) exhibits a varied dividend growth rate from 2003 to 2023, with fluctuations as high as 41.67% in 2006 and lows of -20% in 2015. The average Dividend Growth Rate over these 20 years stands at 16.43%, which is substantially above the 5% benchmark. This suggests robust and consistent growth in shareholder returns, making NSC an attractive option for dividend-seeking investors. The consistency and the average rate indicate financial strength and a steady upward trend in dividends, reinforcing investor confidence and depicting a positive long-term outlook.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio is the percentage of earnings paid to shareholders in dividends. A ratio lower than 65% often indicates that the company retains enough earnings for growth.

Norfolk Southern (NSC) has maintained an average payout ratio of approximately 33.64% over the last 20 years, with yearly figures ranging from as low as 13.10% to as high as 67.06% in 2023. This consistent average—and the fact that most yearly values are well below 65%—indicates that NSC has a robust approach to both rewarding shareholders and retaining earnings for future growth. The spikes in 2009 and 2023, where the payout ratio hit a high of 48.94% and 67.06%, respectively, raise some questions but these are isolated outliers rather than a continuous trend. Overall, this payout ratio trend suggests a healthy, steady dividend policy balancing immediate shareholder returns with long-term investment and stability.

Dividends Well Covered by Earnings?

A company's dividends should be well covered by its earnings to ensure that it can sustain dividend payments even in periods of reduced profitability. This ratio is typically measured as dividend payout ratio (dividends per share divided by earnings per share).

For Norfolk Southern (NSC), the coverage of dividends by earnings per share (EPS) has varied significantly over the years. A ratio below 1 indicates that the company can cover its dividend payments with its earnings. Historically, NSC has mostly maintained this ratio well below 1, implying good coverage. For instance, in 2021, the ratio was 0.3418, meaning EPS covered dividends almost three times over, demonstrating healthy financial management. However, certain years like 2017 show a lower coverage rate with a ratio of 0.1310, which could present a concern for dividend sustainability during economic downturns. Despite this, the overall trend indicates a prudent approach towards dividend payments in relation to earnings, suggesting a generally positive trend.

Dividends Well Covered by Cash Flow?

The dividend coverage ratio is a key indicator in assessing a company's ability to sustain its dividend payments. This ratio is calculated by dividing the free cash flow (FCF) by the total dividend payout. A higher ratio suggests that the company generates sufficient cash flow to cover its dividend payments, thereby indicating financial stability.

Observing the dividend coverage ratio of Norfolk Southern (NSC) over the years, it's evident that the ratio has fluctuated significantly. Initially, in 2003, the coverage ratio was 0.35, indicating that dividends were well-covered by free cash flow. This coverage improved substantially in subsequent years, reaching its peak in 2023 with a ratio of 1.48. However, certain years like 2015 showed a high ratio of 1.45, suggesting an over-reliance on free cash flow to cover dividends, which can be a risk during downturns (e.g., the ratio neared 0.91 during the 2009 financial crisis). More recently, from 2020 to 2023, the ratio has hovered around 0.37 to 1.48, indicating varying yet adequate coverage. Such patterns demonstrate that while NSC generally maintains sufficient free cash flow to cover dividends, there are instances of variability that could pose potential risks. Overall, the trend is positive, reflecting good financial health with the ability to cover dividends, but the variability warrants cautious monitoring.

Stable Dividends Since the Company Began Paying Dividends?

Stable Dividends Over the Past 20 Years refers to consistent and predictable dividend payments over the past two decades, where dividends did not drop by more than 20%. It is crucial for income-seeking investors because it provides a reliable income stream.

Over the past 20 years, Norfolk Southern's (NSC) dividends per share have shown a consistent upward trend, increasing from $0.3 in 2003 to $5.4 in 2023. Although there was a minor decrease in 2016 where dividends dropped from $2.95 to $2.36, this reduction was not more than 20%. Therefore, Norfolk Southern qualifies as a stable dividend payer. This stability is excellent for income-seeking investors, offering predictability and reliability, essential in ensuring steady returns. Overall, the trend is positive and a testament to the company’s robust financial health.

Dividends Paid for Over 25 Years?

Evaluating whether Norfolk Southern has consistently paid dividends for over 25 years is important as it indicates financial stability and commitment to returning value to shareholders over a long period.

Norfolk Southern (NSC) has indeed shown a strong track record of paying dividends consistently over the last 25 years, from 1998 to 2023. This long-term commitment is a positive indicator of the company's financial health and its dedication to providing shareholder value. In 1998, the dividend per share was $0.8, and it has grown to $5.4 by 2023. This consistent increase, even through economic downturns such as the 2008 financial crisis and the more recent 2020 pandemic, underscores the resilience and profitability of the company. Trends showing consistent or increasing dividend payments can be very attractive to investors looking for stable income, making this a favorable trend for Norfolk Southern.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable Stock Repurchases Over the Past 20 Years

Norfolk Southern (NSC) has shown a consistent trend in repurchasing its own shares over the last 20 years. With a reduction in the number of shares outstanding from 390,510,949 in 2003 to 226,900,000 in 2023, the company has proven its commitment to enhancing shareholder value through buybacks. The period from 2007 to 2023 has especially been significant, with repurchases being conducted reliably each year. Given an average repurchase rate of -2.6396%, this trend indicates a strong, sustained focus on returning value to shareholders. However, investors should continue monitoring the impact of buybacks on the company's cash flow and overall financial health to ensure the practice remains beneficial.