Saturday, 10 November 2012

New Purchase - Norfolk Southern (NSC)


On Friday, I initiated a position in Norfolk Southern. The stock has tumbled 26% from its 52 week high of $78.50! Reminds me of Mellencamp’s Crumbin’ Down.

I grabbed 50 shares @ 57.90 + $9.95 commission, which brings my price to $58.10 per share for a yield 3.44%. Friday morning, I had placed a limit order for $58.20, but then changed it to $57.90 in mid afternoon. I do that sometimes, but I probably shouldn’t.

Average Dividend Yield Analysis*

NSC
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Annual Dividend
High Yield
Low Yield
2002
$26.98
$17.20
$0.06
$0.06
$0.07
$0.07
$0.26
1.51%
0.96%
2003
$24.62
$17.35
$0.07
$0.07
$0.08
$0.08
$0.30
1.73%
1.22%
2004
$36.69
$20.38
$0.08
$0.08
$0.10
$0.10
$0.36
1.77%
0.98%
2005
$45.81
$29.60
$0.11
$0.11
$0.13
$0.13
$0.48
1.62%
1.05%
2006
$57.71
$39.10
$0.16
$0.16
$0.18
$0.18
$0.68
1.74%
1.18%
2007
$59.77
$45.38
$0.22
$0.22
$0.26
$0.26
$0.96
2.12%
1.61%
2008
$75.53
$41.36
$0.29
$0.29
$0.32
$0.32
$1.22
2.95%
1.62%
2009
$54.55
$26.69
$0.34
$0.34
$0.34
$0.34
$1.36
5.10%
2.49%
2010
$63.67
$46.18
$0.34
$0.34
$0.36
$0.36
$1.40
3.03%
2.20%
2011
$78.40
$57.57
$0.40
$0.40
$0.43
$0.43
$1.66
2.88%
2.12%
2012


$0.47
$0.47
$0.50
$0.50
$1.94


2013


$0.50
$0.50
$0.50
$0.50
$2.00












Stock prices and dividends are per calendar year.
10y ave
2.44%
1.54%
Dividends are listed in the quarter they were paid.
5y ave
3.22%
2.01%







3y ave
3.67%
2.27%







5y
$62.21
$99.69







3y
$54.49
$88.11






Super Cheap
$39.25


The table shows the 3 year average dividend yield to be 3.67% ((5.10% + 3.03% + 2.88%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current cash dividend of $2.00, one would have to pay $54.49 for a 3.67% yield.

Buying the stock at its low in 2009 would have earned you an initial yield of 5.10%. Using the current dividend, that corresponds to a stock price of $39.25 today (see “super cheap” price in the table above).

Graham Price

NSC’s 2009, 2010 and 2011 EPS were $2.76, $4.00 and $5.45.
NSC’s BV is $30.90.
Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $53.90

Cyclically Adjusted Price to Earnings Ratio

NSC’s 10Y Ave EPS = $3.16
CAPE = Stock Price / 10Y Ave EPS = $58.00 / $3.18 = 18.35
A CAPE below 20 is very good.

Conclusion

Based on my three metrics, the stock price of NSC is very attractive. I will consider adding to my position if it dips below $55. I am also considering selling a put on the stock: 1 NSC Jan 18 ’14 $57.5 Puts @ $7.20.

Don’t hesitate to leave comments, especially if I’m unclear. I aim at writing short articles that are easy to understand. Your feedback will help me do just that. If you'd like to see this type of analysis for a particular stock, ask and I'll do my best.

*My method is not perfect as the stocks low price may have occurred before the annual dividend increase.



4 comments:

  1. wow, you got in at a great price, and timed the bottom perfectly, on Friday!

    I would add more at these levels, but I jumped the gun a little too early and bought my fair share last month. I'm looking at MCD, KMI, and VOD now.

    ReplyDelete
    Replies
    1. If the markets keep dropping next week, there are going to be some fantastic deals. I'm looking to get in on MCD too, but only if it drops below $82. I'm staying away from KMI for now because I don't like it's P/E and payout ratios. Thanks for stopping by and happy pickings.

      Delete
  2. Good buy! I'm currently considering NSC as a potential buy this month. I really like the valuation its trading at these days, yet I am content with the shares I already own. It's a tough decision! If I didn't already own it, it would be a no brainer.

    ReplyDelete
    Replies
    1. After the past couple days, looks like stocks might keep getting cheaper. There are good deals now, but it's in my nature to procrastinate. I've placed some orders for INTC and VOD over the past two days, but they haven't been filled. I hope we can pick up more NSC below $55.

      Delete