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Where Norfolk Southern’s Dividend Payout Stands next to Other Class I Railroads

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NSC’s quarterly dividend

On October 24, 2017, Norfolk Southern (NSC) announced a quarterly dividend of $0.61 per share, payable on December 11, 2017, to shareholders of record on November 3, 2017. NSC paid a dividend of $0.59 per share in 4Q16. Since the start of fiscal 2017, the company has increased its dividend from $0.59 per share to $0.61.

Norfolk Southern has been a regular common stock dividend payer for 141 consecutive quarters since its inception in 1982. On September 30, 2017, NSC had cash and equivalents of $724.0 million, up from $642.0 million on June 30, 2017.

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NSC’s dividend payout

In its Strategic Plan 2020, Norfolk Southern aims for a DPR (dividend payout ratio) of ~33% over the long term, along with substantial stock buybacks. With EPS (earnings per share) of $1.75 and a per-share dividend of $0.61, the company’s current DPR is ~35%, which means that the company retains 65% of its per-share earnings to reinvest in the business.

Over the past ten years, NSC’s lowest DPR was 26%, while its highest was 49%. The current levels of payouts align with the financial targets outlined in its Strategic Plan 2020. By comparison, NSC’s Class I railroads peers have the following dividend payout ratios:

  • CSX (CSX): 36.2%
  • Union Pacific (UNP): 42.2%
  • Kansas City Southern (KSU): 27.6%
  • Canadian National Railway (CNI): 40.2%
  • Canadian Pacific Railway (CP): 20.1%

Canadian Pacific has the lowest dividend payout among the Class I peers. This shows that the company has been reinvesting more into its business than its counterparts have. It also explains why CP raised its fiscal 2017 EPS guidance during its 3Q17 earnings conference call on October 17, 2017.

Investors willing to go with transportation stocks can consider the iShares US Industrials ETF (IYJ). This ETF holds around 6% in prominent US railroads.

In the next and final part of this series, we’ll check in what the analysts are saying about Norfolk Southern after its 3Q17 results.

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