All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Norfolk Southern in Focus
Norfolk Southern (NSC - Free Report) is headquartered in Norfolk, and is in the Transportation sector. The stock has seen a price change of 19.42% since the start of the year. The railroad is currently shelling out a dividend of $0.94 per share, with a dividend yield of 2.11%. This compares to the Transportation - Rail industry's yield of 1.5% and the S&P 500's yield of 1.9%.
In terms of dividend growth, the company's current annualized dividend of $3.76 is up 23.7% from last year. In the past five-year period, Norfolk Southern has increased its dividend 4 times on a year-over-year basis for an average annual increase of 8.74%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Norfolk Southern's current payout ratio is 33%, meaning it paid out 33% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, NSC expects solid earnings growth. The Zacks Consensus Estimate for 2019 is $10.62 per share, representing a year-over-year earnings growth rate of 11.67%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, NSC is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).