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Norfolk Southern Corporation (NYSE:NSC) is about to trade ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Norfolk Southern's shares on or after the 3rd of August will not receive the dividend, which will be paid on the 21st of August.
The company's upcoming dividend is US$1.35 a share, following on from the last 12 months, when the company distributed a total of US$5.40 per share to shareholders. Based on the last year's worth of payments, Norfolk Southern has a trailing yield of 2.3% on the current stock price of $236.66. If you buy this business for its dividend, you should have an idea of whether Norfolk Southern's dividend is reliable and sustainable. As a result, readers should always check whether Norfolk Southern has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Norfolk Southern
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Norfolk Southern paying out a modest 46% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (60%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Norfolk Southern's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Norfolk Southern's 9.6% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.