dividend increaseEarlier this month, Norfolk Southern Corporation (NSC) announced a small 3.85% dividend increase.  Norfolk Southern is a railroad company engaged in the transportation of raw materials, intermediate products and finished products in the Southeast, East and Midwest United States.  Norfolk Southern is a company I own in my personal portfolio and one of my top 35 dividend growth stocks.

With the recent dividend increase announcement, I wanted to do a review to see how an investor would have fared owning shares of Norfolk Southern over the past 10 and 20 years.  Next week I’ll follow up with a thorough analysis of Norfolk Southern to evaluate whether Norfolk Southern is currently a good buy for investors.

A 10 Year Investment in Norfolk Southern

Let’s take a look and see how you would have fared if you invested $5,000 in Norfolk Southern’s stock exactly 10 years ago.  On January 29, 2004 you would have been able to purchase roughly 224 shares of Norfolk Southern for $4,990.72 at a closing price of $22.28.  The most recent closing price of NSC was January 29, 2014 when NSC stock closed at $89.80.  Today your 224 shares would be worth roughly $20,115.20 for a return of 303% or a compound annual growth rate of 14.96%.

Market returns have been pretty spectacular for Norfolk Southern’s investors over the last decade.  Even more remarkable is that when we include dividends earned the returns will be even better.  Over the course of the past 10 years you would have received a total of $2,710.40 in dividend income.  This means that your total return over the past decade while owning Norfolk Southern stock has been 357% or 16.42% compounded annually.  Investors in this boring railroad company over the past decade have done extremely well with Norfolk Southern stock.

So over the past 10 years while owning shares of what some may consider a boring company in a boring industry, you have enjoyed a 16.42% compounded annual return.  You have been paid in cash dividends $2,710.40.  You could have used that dividend income to pay some bills, travel, attend sporting events, donate to charity or anything else you’d like.  Or you could have reinvested those dividend payments and your total return would have been even better.

A 20 Year Investment in Norfolk Southern

A 10 year investment in Norfolk Southern stock has investors 357% wealthier.  How about a 20 year investment?  Lets take a look at how you would have fared had you invested roughly $5,000 in Norfolk Southern stock 20 years ago.  On January 29, 1993, NSC stock closed with a price of $51.37.  You would have been able to buy 97 shares for a total price of $4,982.89.  Since that date there was a 3 for 1 stock split.  Today you would have a total of 291 shares worth a total value of $26,131.80.  This would give you a return of 424% or 8.64% compounded annually.

Once again don’t forget about all the dividend income you would have received over the past 20 years just for being an owner of Norfolk Southern shares.  Over the past 20 years you would have received a total of $5,470.80 in dividend income from Norfolk Southern.  This means that your total return over the past 2 decades of owning NSC stock has been 534% or 9.68% compounded annually.

So a 20 year investment in Norfolk Southern earned you a total return of 9.68% compounded annually which is pretty great over such a long stretch.  You would have received $5,470.80 in dividend income to either offset your expenses or reinvest in the company.  Had you reinvested in more Norfolk Southern stock your returns would have been even better.

Conclusion

I do this exercise to show the power of dividend growth investing.  By investing in one of the most popular blue chip dividend growth companies 10 or 20 years ago, investors could increased their wealth substantially.

It should be noted that Norfolk Southern only has a 12 year dividend growth streak, so most likely dividend growth investors would not have been buying until just this most recent decade.  Fortunately for us dividend growth investors, the current 12 year streak now makes this great company show up on our investing radars.

Next week I plan on doing a full analysis of Norfolk Southern (NSC).  This will give the investor a better idea if the company is currently worth investing in.

I want to point out that I am not taking into account the company’s valuation 10 or 20 years ago.  I am merely looking at how you would have fared if you had purchased the stock exactly 10 or 20 years ago.  If the company was overvalued at the time of your purchase, your returns will generally be lower.  If the company was undervalued at the the time of your purchase, returns generally will do well.  Stock valuation at the time of purchase is one of the most important things to take into consideration.  Even a great investment will not turn out great if you pay too much for it.

What do you think?  Do you own Norfolk Southern stock?  Would you have been happy with these returns over the past couple decades?  Where do you see this company going in the future?

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10 Responses to An Investment in Norfolk Southern

  1. DGSI,
    I took a hard look at NSC a few months ago but ultimately went with CSX instead. But you make a very strong case here for NSC. I probably won’t add another railroad for a while unless CSX gets bought or goes sour. Its a boring industry that I like a lot.
    -RBD

    • Dan Mac says:

      HI Retire Before Dad. I just want to point out that all I’m doing is reviewing how an investment in NSC would have peformed had you bought NSC 10 or 20 years ago. These articles help show the power of dividend growth investing.

      However, next week I’ll be doing an in depth analysis to determine if NSC is currently a good company to buy. I like the company and own some shares but just looking quickly I’m not sure if valuation is good right now for a purchase. I’ll look more deeply next week.

  2. I own NSC and while but I won’t be adding to my position right now. I want to diversify into either CSX or UNP to hedge my bets a bit. But the local monopolies are awesome.

    • Dan Mac says:

      Thanks JC. I currently own NSC and CSX. I’d like to get my hands on some UNP as well sometime so I can just own all 3 top railroads. I think they are great long term companies.

  3. Marvin says:

    I looked into Norfolk Southern a while back but was waiting for a pullback. It’s definitely on my watchlist whenever this market decides to take a breather.

    • Dan Mac says:

      Thanks Marvin. I’ll do an in depth analysis of NSC shortly to see if it’s good to buy at the current time. Might be better to wait for a lower entry point.

  4. Martin says:

    I didn’t know about this company, so thanks for bringing it up. I added it to my watchlist for future investment idea.
    Thanks for analyzing the stock. Saves a lot of time!

    • Dan Mac says:

      Thanks Martin, I think Norfolk is a good company and I’ll be reviewing it next week to see if they are at a good buying price right now. I think they might be a little high last time I looked but with the market coming down lately, they could slip back down into a good buy range. Good Luck!

  5. Swadoss2 says:

    Thanks for the write up.
    Interesting company.
    For a new purchase, how do you factor in the upcoming coal regulations and their possible impact on rail cos. into your analysis?

    • Dan Mac says:

      Thanks for the question Swadoss. I’d have to do a little more research into the coal regulations to see how they will really affect NSC’s business. Currently around 26% of freight is made up of coal so the recent decline in coal demand (due to more demand going towards natural gas) has affected NSC’s bottom line some. However, they are continuing to grow EPS which is the main number investors should be concerned with. As for the upcoming regulations, I’d have to look more into in order to see if I believe it could be a material effect on the shareholders bottom line.

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