Whenever I go to the park with my son we have to drive by a locomotive that is displayed at the entrance. I'm not sure what it is, but America has had a fascination with the iron horse for over a century. Norfolk Southern (NYSE:NSC) is no exception, a railway holding company that has been through acquisitions and mergers for many years. Norfolk Southern's rail system expands as far north as Maine, as far south as Florida, as far west as Texas, and all along the Eastern Seaboard.
In the past 12 months Norfolk Southern has earned almost $11 billion in revenues. The company has $30,599,000,000 in assets and $20,489,000,000 in liabilities; $25,870,000,000 of these assets are property and equipment. This is standard for a railroad company due to the large amounts of land and equipment required to run the business. An investor should expect a railroad company to have a high amount of debt. That's mainly because new assets are financed and paid off over time. Norfolk Southern is very well and conservatively financed.
Norfolk Southern has paid a dividend since the creation of its current incarnation, formed in 1982. The current dividend is $2.00 at a yield of 2.6%. The current payout ratio is 35%. In August of last year, the company raised its dividend by 6.4%. Current earnings are $5.56 for the past 12 months. Norfolk Southern has a market cap of just over $24 billion. Currently, its Graham number is at $63.36. Earnings for the past seven years are as follows:
Norfolk Southern has had steady growth over the past seven years. The exception is between 2008 and 2009 when earnings dropped by 61%. This is not unusual as it coincides with the height of the recession. We do see steady earnings growth from 2009, which is a good sign of the company getting back on track.
A major concern is the relevancy of railroads in today's world. Railroads compete against airlines, boats, and trucking in order to move items and people from one point to another. Railroads are not the quickest. However, due to relatively fast preparation time, trains can greatly reduce the total time spent when taking a trip. Railroads are also able to carry large amounts of cargo or passengers at a more efficient price.
The premise of railways has changed very little over time. As newer technology is developed, the technology is integrated into the systems as new equipment is produced. Even though there are reasonable concerns about the place of railways in today's world and in the future, trains have their place and provide an invaluable service other modes of transportation cannot.
One sign that a company is healthy is a stable share repurchase program. In August 2012, Norfolk Southern announced a 50 million share repurchase program good through 2017. As it stands, the company has 315 million shares. Over the next four years Norfolk Southern plans to retire over 15% of its outstanding shares.
Norfolk Southern stands as a good investment. It is involved in a sector that has been around for over 100 years. Even though there may be some issues in the future and skepticism regarding its place in today's world, the company provides a service at a value that others cannot match. Norfolk Southern is returning long-term value to its shareholders in the form of solid dividends and a solid stock repurchase program that has retired almost 25% of its shares in the last 20 years.
If you're looking for a railroad company to add to your portfolio, Norfolk Southern is a great addition for any long-term investor.
Disclosure: I am long IBM, KO, MPC, WMT. NSC is on my watch list. I may, at any time without notice, initiate a position in NSC based on its price action and my criteria for investing. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.