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Norfolk Southern Corporation (NYSE:NSC) will pay a dividend of $1.35 on the 20th of February. This makes the dividend yield 2.1%, which will augment investor returns quite nicely.
View our latest analysis for Norfolk Southern
Norfolk Southern's Future Dividend Projections Appear Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much. The last payment was quite easily covered by earnings, but it made up 4,365% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.
Looking forward, earnings per share is forecast to rise by 44.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which is in the range that makes us comfortable with the sustainability of the dividend.
Norfolk Southern Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the dividend has gone from $2.16 total annually to $5.40. This means that it has been growing its distributions at 9.6% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
The Dividend's Growth Prospects Are Limited
Investors could be attracted to the stock based on the quality of its payment history. However, Norfolk Southern has only grown its earnings per share at 2.3% per annum over the past five years. Norfolk Southern is struggling to find viable investments, so it is returning more to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.
Our Thoughts On Norfolk Southern's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Norfolk Southern is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Norfolk Southern that investors need to be conscious of moving forward. Is Norfolk Southern not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.