Dividend Diplomats Recent Buy – NSC

The big bad  Dividend Diplomats were at it again last week!  The train heard the smoke pop in the air, the metal grind was being heard and a stock opportunity came that couldn’t be passed up.  As us diplomats due in great fashion, we try to stock while the iron is hot, let alone when a steam engine is chugging through on the tracks.  That is exactly what we did.  On Wednesday, July 8th, the diplomats pulled the trigger on a great company.10066184_dec3image1

The Purchase of NSC by Lanny

I (Lanny) had a limit order set on Wednesday in the amount of $86.000 er share for Norfolk Southern Company (NSC).  As I described earlier last week, Mr. Market has been on a roller coaster ride and this great company was on my shopping list once I had the capital..  It had been close to a month since my last stock purchase, which was JNJ, another stock on the list, that led me almost into another period of stock purchasing anxiety, especially when the market is showing ample opportunity for undervalued fundamentally sound companies.  Why did I make this purchase?  Well, to incorporate the stock screener into our selection, Norfolk had the following:

1.) Dividend Yield of approximately 2.744%, which is well above the S&P 500 of around 1.90 to 2% and also crushes their 5 year average of 2.30%

2.) Dividend Growth – I love this metric and their dividend growth is 11.3% over a 5 year span, something that is phenomenal, especially coupled with an above average dividend yield.  This adds quite an impact to my forward dividend growth rate for my portfolio as a whole (and is approximately 4.5% higher than my weighted average growth rate before the purchase.  I like it.

3.) The P/E ratio, based on EPS of $6.40 was 13.44, or below the 15 that I really like to see, well below the market as a whole and is attractive amongst their competitors.

4.) This leads to a payout ratio of approximately 37%, well below the 60% threshold we traditionally like, but above the 20% we look for, a lot of room for growth, but also quite a bit of earnings to grow the company internally.  I dig it.

5.) My NSC stock analysis timeline, the stock was trading around $100 per share.  What does this mean?  Well, 14% off and 2.5 months later, and this stock is now mine at $86 per share.  As you’ll see further below… Bert got it the same day at an even better price, typically Jewish man, always finding a way to save af few more pennies, psh, weak.

Overall, I have been monitoring this stock for quite some time.  I previously did not own this company nor did I own anything in the transportation sector – which is why this fits even more.  In summary, I purchased 17 shares at $86.00 per share with a $6.95 trading fee.  This added $40.12 to my forward dividend income and I purchased this, to what I am expecting, is a July dividend increase within the upcoming 14 days (my guess is Tuesday the 21st).  Pumped to hop on the train.  Now Bert, why the heck did you purchase this stock… again and again??

The Purchase of NSC by Bert

Lanny, I think you showed why NSC is one heck of a purchase right now and why I have been so excited to continue to build my position in NSC over the last couple of months.  Hands down, it is a great dividend growth stock in a high barriers industry, so taking advantage of this dip will hopefully pay-off twenty to thirty years from now when we are all enjoying the benefits of financial freedom.   In addition to what you pointed out above, here are the reasons why I decided to purchase additional shares of NSC, adding $16.52 to my forward dividend income.

1.  Similar to Lanny’s article discussing his strategy during the pullback in the market, I put together a watch list of five domestic stocks that I was keeping my eye on as the Greece scenario played itself out.  My focus was on domestic companies here in the US, and NSC made the cut.  So as the price continued to fall, and on the purchase date, the decrease was double all of the other stocks on my list, it seemed liked the perfect time to take advantage of the list I put together a purchase on of the stocks.

2. Lanny and I have periodic discussions about the appropriate time to purchase a stock that is in an unrealized loss position.  Typically, for stocks we recently purchased, we throw around a 5% figure.  Thus, if the stock has declined 5% since you purchased it recently and nothing has really changed with the company, then why not purchase the stock as it continues to fall and continue to lower your position’s cost basis.  Pretty simple logic, right?  Well, my first purchase of NSC was ~$100/share and my second purchase was ~96/share, so I was currently facing an unrealized loss of great than 10%.  So this checked this crucial box for me considering my position in NSC was one of the largest in my portfolio.

3.  Another quick note about NSC is that the company is expected to announce one of their semi-annual dividend increases at the end of the month.  I wanted to make sure I was able to purchase shares before the announcement was made so I can benefit from the hopefully positive news.  Keep your eyes on July 21st, as that is the date we are projecting that the dividend increase is announced.

4.  This is my final reasoning here and quite frankly, my favorite.   Lanny, you made one crucial mistake here my friend, you told me about this purchase way too early on in the day.  I was sitting at work (and honestly, I was busy so I wasn’t paying too close of attention to the market.  I know, I know, pretty sad on my end) and received an email from Lanny bragging about how he added NSC at $86/share.   And as the day progressed, the stock price just continued to fall.  So heck yeah I am going to take the opportunity to purchase a stock on my watch list that is currently trading at a discount compared to when Lanny purchased it a few hours earlier.  Lanny, I don’t know what you called that up in your section, but I call it SMART.   Take that Lanny!  Now, the one caveat is that  Lanny is the overall victor because my average cost basis in NSC is still higher;  but today, I was triumphant.   I don’t get many investing victories over Lanny, so when I do, I have to take the opportunity to rub it in his face as much as possible.  Want more proof, check out the last time I delivered Lanny a crushing defeat in monthly dividend income.

Summary

Patience served both of us well over the last week.   Each day there was a new development in the stock market and it seemed Mr. Market was in a week-long slump.   Finally, the iron was hot enough where we were able to take advantage of a dog day where one great dividend stock dropped over 2%.   That’s why having a plan of attack is so crucial in times like these, so you can move decisively when an opportunity presents itself.  Doors don’t remain open for a long period of time, which is further evidenced by the fact that NSC’s stock price rebounded slightly.   We couldn’t be happier with our purchases from the week and hopefully next week presents us with some others.

What do you think of our purchases?  Did you purchase NSC this week?  If not, what about any other stocks?  What stocks are on your watch list and are you planning any moves?  We are looking forward to your comments!

-The Dividend Diplomats

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12 thoughts on “Dividend Diplomats Recent Buy – NSC

  1. Great purchase Lanny & Bert! NSC looks very attractive – now that most railroads have been punished. A great company…cant argue with that starting yield (esp in a sector where starting yields are so low) and the div growth rate.

    Best wishes
    R2R

  2. Awesome Purchases guys. Quality stock. Wide Moat. High barriers to entry. Diversifying your income sources. Just awesome. Keep it up and slowly and surely, we will all reach our goals. No doubt. Thank you for sharing my friends and keep it up. Happy for you 2! Cheers to us buds!!

    • Hustler,

      Thanks for the post. Big barrier for entry, strong dividend policy, great growth, better than the 5 year average, low P/e ratio, looking forward to it. Cheers to us for sure, keep raising that glass.

      -Lanny

  3. Another solid buy for sure. Most have been buying into UNP but NSC is just as solid a company. As you know we like those wide moat businesses and rail lines are very wide moat. Congrats on your recent buy.

    • DH,

      Thanks for the post. NSC is right there behind it, I really like their dividend percentages a little better actually right now. Extremely wide moat and things are still moving from point A to point B. Looking forward to owning them.

      -Lanny

  4. Hah! Good going there guys. Nice rivalry:)
    Did I buy NSC this week? I surely did. And yes, excited to see that dividend declaration. Are we going to get a raise or what!?:)

    • DL,

      That’s awesome that you did as well, I’ll go to your site to read if you wrote about it.

      haha and glad you like the Rivalry between Bert and I. Now on to the next part – LETS GET THAT RAISE SON!!!

      -Lanny

  5. Nice purchases guys. It’s tough to replace a railroad, hence the solid moat and staying power. We initiated a purchase on Union Pacific a few weeks ago at $100, and are looking to average down as well. Keep up the good work guys, and have a great week!
    -Bryan

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