Thursday, February 16, 2012
New Purchase - NSC
Yesterday Norfolk Southern (NSC) dipped below $68 giving me an opportunity to invest in the company with a yield over 2.75%. The minimum yield I will accept in a stock is 2.75% so I decided to make the purchase. I've been watching NSC for a while, and finally I can add it to my portfolio. It reached my minimum yield threshold due to a recent dividend hike and decline in share price. NSC and KO are the only companies I've purchased with a yield less than 3%. I reason that these companies shouldn't take more than 1-2 years to reach a 3% YOC, which is what I'm after.
I picked the 2.75% threshold because I buy dividend stocks for the dividends, I think it can be dangerous to expect huge dividend growth rates to be sustained over long periods of time. Expecting sustainable div growth rates of greater than 10% can be just as risky as expecting sustainable high yields in my opinion. It would stink to buy a stock that only pays 2% and find out later that the dividend is not growing as fast as expected.
I purchased 19 shares NSC just under $68/share giving me a yield of exactly 2.75%. The yield would have been slightly higher, but I have to pay my broker those pesky fees to make trades. I include transaction costs in the basis.
Norfolk Southern is a railroad company, which is exactly the type of business I like. I like boring companies that produce oil, toilet paper, cigarettes, soda, band-aids, and the like. Railroads fit right in and are easy to understand. I like railroads because I suspect that they will benefit as the price of oil continues to rise. This concept is nothing new, having been popularized when Warren Buffet bought BNSF a few years ago. The purchase also further diversifies my portfolio, which is important to me.
Selected stats on NSC: 2.75% yield, 34.5% payout ratio, 13% div growth rate (5yr), 12.4 P/E, 2.24 P/B, 17% estimated long-term EPS growth. 10 years of annual dividend increases. Solid.
This was my last planned purchase for February. I will be monitoring the market, but won't swoop in for more unless something happens that I cannot say no to.