Norfolk Southern's (NYSE:NSC) Dividend Will Be $1.35

Norfolk Southern Corporation (NYSE:NSC) has announced that it will pay a dividend of $1.35 per share on the 20th of November. 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

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Norfolk Southern's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, earnings per share is forecast to rise by 63.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, 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 2014, the annual payment back then was $2.16, compared to the most recent full-year payment of $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.

Norfolk Southern May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. However, Norfolk Southern's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 0.6% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Norfolk Southern's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Norfolk Southern that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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