Since my primary investment objective revolves itself around the generation of income, dividend-related events are always something I tend to keep an eye on. It is these types of events that have a tendency to influence my decision in terms of which stocks I should keep on my radar and which ones I should not. With that said, and in the wake of its latest dividend increase, I wanted to highlight several reasons why I've chosen to stay bullish on shares of Norfolk Southern (NYSE:NSC).
A Brief Summary of the Company
Headquartered in Norfolk, Virginia, Norfolk Southern Corp. along with its numerous subsidiaries, is engaged in the rail transportation of raw materials, intermediate products and finished goods. The company also operates scheduled passenger trains, transports overseas freight through various Atlantic and Gulf Coast ports, and provides logistics services. In addition to particular services, it has provided bimodal truckload transportation services primarily utilizing RoadRailer trailers (a hybrid technology that facilitates over-the-road and on-the-rail transportation in the eastern United States, as well as in Ontario and Quebec) through a network of terminals.
Recent Dividend Behavior
On Tuesday, July 22, Norfolk Southern announced a quarterly dividend increase of $0.03/share, which brings its upcoming dividend payout to $0.57/share. It should be noted that the increase will be paid on September 10 for shareholders of record as of August 1. This boost represents a 5.55% increase from its prior dividend of $0.54/share, which was paid to investors on June 10.
Based on the company's dividend behavior over the last 36 months, it should come as no surprise that I foresee its next quarterly dividend hike will take place in the first half of 2015, and that I expect that increase to be at least $0.04/share but no more than $0.06/share.
Upcoming Earnings Outlook
When it comes to the company's upcoming earnings, there are a number of things potential investors should consider. For instance, analysts are currently calling for NSC to earn $1.74/share in terms of EPS for Q2 when earnings are announced on July 24 (which is $0.57/share higher than what the company had reported during Q1 2014, and $0.28/unit higher than the company had reported during the year-ago period).
In order to meet and/or exceed its quarterly EPS estimates, I'd like to see an increase of at least 2.5% in terms of the company's Railway operating revenues (compared to Q1's Railway operating revenues of $2.7 billion), an increase of at least 4% in terms of the company's income from railway operations (compared to Q1's income from railway operations of $667 million), a 1.5% increase in terms of the company's net income (compared to Q1's net income of $368 million) and lastly, an increase of at least 3% in the company's intermodal revenues (compared to Q1's intermodal revenues of $596 million). If the above mentioned criteria are met and/or exceeded, there's a very good chance that current EPS estimates could be surpassed.
Recent Trend Behavior
On Tuesday, shares of NSC, which currently possess a market cap of $32.89 billion, a forward P/E ratio of 14.65, and a distribution yield of 2.12% ($2.28), settled at a price of $107.57/share. Based on a closing price of $107.57/share, shares of NSC are trading 3.90% above their 20-day simple moving average, 6.13% above their 50-day simple moving average, and 16.25% above their 200-day simple moving average.
These numbers indicate both a short term and long-term uptrend for the stock, which generally translates into a buying mode for most long-term investors. If the company can demonstrate a stronger-than-expected earnings performance when it announces Q2 results on July 23, there's a very good chance the company's trend behavior will continue to move in a very positive direction.
For those of you who may be considering a position in Norfolk Southern, I strongly recommend keeping a close eye on the company's recent dividend behavior which has demonstrated a solid uptrend over the last three years and its ability to demonstrate steady increases in income from railway operations, net income and its intermodal revenues as each of these catalysts will play a role in the company's long-term earnings growth.
Disclosure: The author is long NSC. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.