Bert’s Recent Purchase – NSC

Man has it been a busy couple of weeks purchasing stock and I couldn’t think of a better reason to be busy.  Lanny purchased shares of Johnson and Johnson recently, and I am pretty jealous of him.  JNJ is a great company and is a foundation stock that should belong in every dividend investors portfolio at some point.   Nice pickup Lanny!  But I couldn’t let him purchase stock without a response, right?  So I also decided to purchase stock this week, and it is a company that fills a void in my portfolio.  Let’s see which company was added this week!

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The Purchase

Last weekend, Lanny performed a stock analysis of NSC and it was a major influence in my decision to purchase the stock.  I won’t go into too much detail about the fundamentals since his stock analysis was so recent, so if you want detail about how well NSC performed in our stock screener please read his article linked above.  Why did I like NSC? His analysis showed that the company met all three metrics of the screener (lower PE than market, payout ratio <60%, and dividend yield greater than the market) and has a dividend growth rate of ~10%.  In addition, for NSC paid close attention to the dividend growth rate and this metric carried a lot of my weight in my final decision since NSC’s current yield of ~2.2% is lower than my current portfolio’s yield.  When I reviewed my portfolio at the end of 2014, I committed myself to investing in companies that will either (or ideally, both) increase my portfolio’s average dividend yield or the weighted average dividend growth rate (To see why I focus on the dividend growth rate, read this piece Lanny published last year about the importance of your portfolio’s dividend growth rate.  It has had a major impact on my investing strategy).   Since the current yield was below my portfolio’s average of 3.6%, it was imperative that NSC’s dividend growth rate exceeded my current weighted average dividend growth rate of 6.9%.  The average Lanny calculated, ~10%, definitely exceeds this mark.

After reviewing Lanny’s stock analysis, researching NSC further, and determining that it would be a great fit in portfolio, I made up my mind that I was going to purchase shares in the railroad giant in the near future.   So the question was, when was I going to make the purchase?  And this is the fun part of the story.  NSC started the week out at $104/share and didn’t really move on Monday.  At the beginning of Tuesday, NSC began to decline slightly and I only had enough capital to purchase 7.9 shares of NSC.  Since you cannot purchase fractional shares on Sharebuilder unless you enter into an automatic investing trade, which must be entered into by 5PM Monday and I missed that deadline, I was forced to either purchase 7 or 8 shares.  This is where I faced a dilemma, do I purchase 7 shares now or do I hope that the price falls further and I can pick up 8 shares with the current cash I had in my account?  Since I was not in a rush to purchase NSC, I decided to gamble and select the latter option, which would have required NSC to fall an additional 2.4% during the day.  So I calculated the exact price needed to trigger a transaction, $100.40/share, hoped for the best, and headed into a two-hour meeting. Much to my surprise, when I returned to my computer and checked my e-mail, I was the proud owner of 8 shares of NSC, adding $18.88 to my forward dividend income.  I could not believe the price dropped like that out of nowhere, especially because I reviewed the headlines and there were not any specific events that triggered the decrease.  Sometimes, it is lucky to be better than good I guess!

Summary

I am very happy with my recent purchase of NSC and it was very similar to my other recent purchase, ADM, which I added twice a few weeks ago.  Both are low yielding, high growth rate dividend stocks that added a new industry to my portfolio.  With this last purchase, I am making some nice progress towards knocking out my 2015 goals After this purchase, I have now invested $4,275 of new capital in my portfolio (not included DRIP and 401(k) contributions), which represents 29% of my goal of investing $15,000 of new capital in 2015.  Secondly, with the addition of $18.88 in dividend income from this purchase, my total forward dividend income is now $2,022, or 73% of my goal of $2,750.  While I still have some work to do, I am working my tail off make sure I am staying on pace to accomplish my goals by the end of the year.  Having extra capital from my recent job switch has been a catalyst of this recent activity, and hopefully the increased salary that resulted from the switch will continue to drive me towards success during this year.

What are your thoughts on the purchase?  Do you like NSC at its current valuation levels, or would you have invest in JNJ like Lanny?  If not, is NSC on your watch list?

-Bert

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12 thoughts on “Bert’s Recent Purchase – NSC

  1. Hey Bert,

    Way to go on getting a great deal, did you set a limit order then? Luck was definitely on your side! I also had success recently when RDSB dropped and it filled my limit order of £20.01 after they announced the purchase of BG Group.

    I have only recently come across Norfolk Southern, as I am making a watchlist of US stocks to purchase for when the $/£ exchange rate gets a little better. Norfolk Southern definitely were a good company, although given the tax situation I would face on purchasing shares in US stocks, I tend to look for higher yielding stocks to account for the 15% tax I’d lose.

    Cheers

    • M,

      Thank you very much. And yes, I calculated the exact price needed to trigger the transaction and the rest was history. I had a hunch that day was going to be great haha

      NSC is not a sexy company, but it is one with high barriers of entry, has a rock solid DGR, and isn’t going anywhere anytime soon. Great pick. I would be very interested to see which other companies are on your watch list. Can you place US stocks in a tax-free investment account that would shield you from the 15% loss? I have done that with many companies that either pay a high dividend or face an international tax to maximize my dividend benefit. But I am unfamiliar with your rules, so it could be different across the pond.

      Thanks for stopping by!

      Bert

  2. Looks like a good move for both of you so far! It’s interesting fundamentals I must admit. Like I like them! 😉 So congrats Bert!

    Cheers,

    Mike

    • Thank you DM. I am glad that I can call you a fellow shareholder now haha As you mentioned, I love the high barriers and the moats that NSC, UNP, etc. possess. This isn’t an industry that is going to face competition from a new start up anytime soon. The best part is that I take the train into work every day now and each morning I get to see a Norfolk Southern train passing by carrying a full load of cargo. Music to my ears.

      Hope you are having a blast out there in Omaha! I’m excited to read about it when you return.

      Bert

  3. Bert,

    NSC is a great company. I like all of the railroads, and follow them closely. I plan on adding one to my portfolio in my next buy unless something absurd happens.

    Congrats,
    Dividend Gremlin

    • Thanks Dividend Gremlin! You can’t go wrong with the railroad industry. I have had my eye on it for years waiting for a chance to strike. Once I saw NSC drop, I knew this was the moment I was waiting for. Rock solid industry with strong companies that can benefit from high barriers of entry and a strong economic moat. Best of all…great dividend growth rates! Whats not to like here haha

      Bert

  4. Nice buy, and welcome to the NSC shareholder club. They have been a good buy for me thus far. You’re doing good on your goals and I have no doubt you’ll meet them. Thanks for sharing.

    – HMB

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