Back to top

Image: Bigstock

Norfolk Southern (NSC) Stock Gains 12% in July: Here's Why

Read MoreHide Full Article

Stocks in the railroad space are being aided by the upturn in the U.S. economy. A robust domestic economy leads to increased transportation of goods across the country. Given this bullish backdrop, railroads performed very well in the second quarter of 2018, results of which were released last month.

One of the star performers in the railroad space is Norfolk Southern Corporation (NSC - Free Report) . This Norfolk, VA-based company reported better-than-expected revenues and earnings per share in the second quarter of 2018. Both metrics also improved on a year-over-year basis. Results were aided by higher volumes and a reduced tax rate. The improvement in operating ratio (operating expenses as a percentage of revenues) is an added positive. Norfolk Southern’s operating ratio in second-quarter 2018 came in at 64.6% compared with 66.3% in the second quarter of 2017.

Apart from the outperformance, the company announced a hike in its quarterly dividend by 11% to 80 cents a share in July. Notably, this is the second dividend hike by the company in 2018. The hikes underscore its strong financial condition and bright prospects. During the first quarter, the company raised its quarterly dividend payout by 18%. Thus, combined with the 11% dividend hike, Norfolk Southern has increased its dividend by 29% in the ongoing year.

The successive dividend hikes can be attributed to the reduced corporate tax rate arising from the Tax Cuts and Jobs Act. With a low effective tax rate, companies are now left with huge savings to boost their free cash flow. This surge in free cash flow is enabling them to frequently engage in such shareholder-friendly activities.

Apart from Norfolk Southern, other railroads like Union Pacific Corporation (UNP - Free Report) , CSX Corporation (CSX - Free Report) and Canadian Pacific Railway Limited (CP - Free Report) have raised their respective dividend payouts this year.

The impressive second-quarter performance and the dividend hike resulted in the Norfolk Southern stock gaining 12% in July, outperforming its industry’s growth of 8% in the period.

 

 

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>

Published in