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Why Norfolk Southern (NSC) is a Great Dividend Stock Right Now

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

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

Headquartered in Atlanta, Norfolk Southern (NSC) is a Transportation stock that has seen a price change of -23.96% so far this year. Currently paying a dividend of $1.24 per share, the company has a dividend yield of 2.19%. In comparison, the Transportation - Rail industry's yield is 0.87%, while the S&P 500's yield is 1.74%.

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Looking at dividend growth, the company's current annualized dividend of $4.96 is up 19.2% from last year. Over the last 5 years, Norfolk Southern has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13.80%. 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 40%, meaning it paid out 40% of its trailing 12-month EPS as dividend.

NSC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $13.90 per share, representing a year-over-year earnings growth rate of 14.78%.

Bottom Line

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.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that NSC is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).


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