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Norfolk Southern Rewards Shareholders With 7.5% Dividend Hike

Zacks Equity Research

In a shareholder-friendly measure, Norfolk Southern Corporation NSC announced a hike in its dividend payout. This strategic move is reflective of the company’s intention to utilize free cash for enhancing shareholders’ returns.

Notably, the company raised its quarterly dividend by 7.5% to 86 cents a share ($3.44 annually) from 80 cents ($3.2 annually). The new dividend, approved by the company’s board of directors, will be paid on Mar 11, 2019 to stockholders of record as of Feb 4. The dividend yield based on the new payout and the Jan 23 closing market price is approximately 2.1%.  Dividend yield for its industry is currently pegged at 1.4%.

Stellar History of Dividend Hikes

Norfolk Southern is highly committed to creating shareholder value on the back of its strong financial condition. During the first nine months of 2018, the company paid dividend worth $627 million. It generated free cash flow of $1.6 billion in the period.

The latest hike denotes the third quarterly dividend increase by this railroad operator in the last 10 months. In the first quarter of 2018, the company hiked its dividend by 18% to 72 cents a share. This amount was further raised by 11% last July. In fact, Norfolk Southern has paid dividends for 146 consecutive quarters since its inception in 1982.

Norfolk Southern Corporation Price

 

Norfolk Southern Corporation Price | Norfolk Southern Corporation Quote

Dividend Hikes: Not Uncommon for Transports

The current tax law, which came into force in December 2017, is a boon to transports as far as investor-oriented activities like dividend payments are concerned. The significant reduction in corporate tax rate under the current law has boosted cash flow as well as earnings of transportation stocks. Owing to the significant cuts in tax bills, more cash remains in the hands of these companies to fund capital expenditures, buybacks and dividends among others.

Apart from Norfolk Southern, J.B. Hunt Transport Services JBHT — another key member of the transportation sector — has hiked its quarterly dividend. The trucking company upped its quarterly dividend by 8.3% to 26 cents per share ($1.04 annually) from 24 cents (96 cents annually). The new dividend, sanctioned by the company’s board of directors, will be paid on Feb 22, 2019 to stockholders of record as of Feb 8. We expect other transportation players like Alaska Air Group ALK to also follow suit shortly.

As investors prefer an income generating stock, a high dividend yielding one is much coveted. Needless to say that investors are always on the lookout for companies with a track record of consistent and incremental dividend payments.

Zacks Rank & Key Pick

Norfolk Southern carries a Zacks Rank #3 (Hold). A better-ranked stock in the Zacks Transportation Sector is Spirit Airlines SAVE, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Spirit Airlines has an expected EPS growth rate (three to five years) of 27.3%.

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Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
 
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J.B. Hunt Transport Services, Inc. (JBHT) : Free Stock Analysis Report
 
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