Recent Buy

buyWell, to be honest I wasn’t planning on purchasing anything else this month. I felt very content with my recent purchases of KMI shares and INTC shares over the past couple weeks. Especially with the stock market so high, I felt I wanted to hold back a little capital to see what October brought us.

But, when a position of mine takes a dip of almost 10% in one day I tend to take notice. And take notice I did. Today, Norfolk Southern Corp. (NSC), one of the largest railroads in the nation, dropped almost 10% today after it released news yesterday that it expected third quarter earnings well below analysts expectations.

When an investor sees a company’s stock sink like NSC did today, and that investor also has skin in the game, they can either panic and mash the SELL button or they can meet opportunity at the door and let it in. I decided on the latter.

As part of my Recent Buy series, I try to let my readers know of any equities I purchase soon after the transaction is completed. This is just one way I try to document my progress toward early retirement and financial independence.

I purchased 17 shares of Norfolk Southern Corp. (NSC) on 9/21/12 for $65.86 per share. This purchase gave me a 3.04% entry yield on my purchase. This buy will add $34.00 to my annual dividend total based on the current payout of $0.50 per share quarterly.

NSC is a long-term purchase for me. I don’t see railroads going anywhere. I actually see them as a fantastic, and extremely cheap, way to transport goods across the country. Although some analyst have concern over the fall of coal, NSC only derives 31% of their revenue from coal shipments. So, while it’s almost a third of revenue, it’s not completely overwhelming either. I’m interested in keeping NSC in my portfolio for as long as the company remains fundamentally sound and continues to raise dividends at a pace that exceeds inflation. One quarter of an earnings miss does nothing to tarnish that perspective.

If you’re interested in a stock that raises its dividends, NSC is fantastic in that regard. They raised the dividend twice this year alone, and they have a 10-year DGR of 21.3% with an 11-year track record of rising dividends. They are currently trading for an attractive 11.34 P/E ratio, and a 2.2 P/B ratio. The payout ratio currently stands at 34%, which leaves plenty of room for further dividend growth.

Using the Dividend Discount Model to value the shares using the current dividend payout of $2.00 per share annually, a 8% growth rate for the next 10 years and a 7% terminal rate along with a 10% discount I get a fair value of $77.48 per share. S&P currently has fair value for NSC shares at $72.70. I think the current price offers an attractive long-term entry point, and factor in a mild margin of safety.

With this purchase I still have 29 positions in my portfolio.

Some analyst opinions on my recent purchase:

*Morningstar currently rates NSC as a 4/5 star valuation.
*S&P currently rates NSC as a 4/5 star Buy.

I’ll update my Freedom Fund in early October to reflect my recent addition.

What are you buying?

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

Comments

    • says

      DGM,

      I see we both got in at almost the same exact price. Nice move!

      I don’t get to watch the market closely everyday as I’m extremely busy at work…but luckily I heard about the potential hit to NSC when it was trading fast and furious during after-hours trading. I knew it would be ugly this morning and it was. Good for us!

      I also love it when a bi-polar Mr. Market comes to my doorstep in a particularly depressed mood. Makes for a great day!

      Best wishes.

    • says

      FI Fighter,

      Good stuff! Another NSC buyer. :)

      You still got in at a great long-term price. It may even move lower from here, and that’s fine. I pick up shares for attractive prices and let the market continue it’s gyrations.

      Great addition to your growing FI fund!

      Best regards.

  1. says

    Very interesting. I’ve had my eye on this one as well, though I did not buy today.

    I wonder, among dividend growth investors, if certain stocks tend to get bought en masse as stocks reach certain entry yield points, like NSC did today. Given that both of you above bought this due to the price drop, I would surmise that others noticed the same opportunity. It would be interesting to see some sort of report on the mention of certain stocks as buy opportunities on DG blogs based on price fluctuations.

    • says

      The Executioner,

      I don’t really pay all that much attention to entry yield points, like 3%, 3.5% and 4%. Rather, I pay attention to overall valuation, and the yield is just one more tool to value a stock. Historical yield can be especially valuable.

      Yields tend to form a floor and a ceiling on stock prices, so I do pay attention to them…but they don’t trigger me to buy stocks. For instance, if I was waiting for a 4% yield point on INTC I’d still be waiting. I purchased instead because I thought it was attractive as a long-term investment.

      Best wishes!

  2. says

    Nice buy! I see several people made a NSC purchase today. I actually sold a NSC put for a nice premium. I will continue to watch what happens and may purchase shares on further weakness.

    • says

      austinbroker,

      I see you did pretty well with the put on NSC. Very nice, my friend!

      That’s a win-win for you, because even if you get assigned the shares you’ll get in at an excellent price. Nice move.

      Best regards.

  3. Chad says

    Bought 20 shares this morning at $65.78. I just couldn’t pass up the 3% yield that was offered. Nice to see after my purchase that I come here and you bought it too. With nearly 81 shares now (gotta love dividend reinvestments), I’m about to the max level for this investment. Though with another drop I might get some more. Like you, I don’t see railroads going out of business, and I love it when my long term purchases have a temporary weakness.

    • says

      Chad,

      Nice move. I think you’ll be happy with your NSC purchase. Like you, I’m very happy with a long-term holding experiences a short-term price drop. As long as the fundamentals are sound I’ll gladly average down.

      81 shares is strong. I’m now at 50 shares and I’ll have to allocate capital elsewhere unless this one really drops much further from here.

      Best wishes.

    • says

      Glenn,

      Nice buy! Getting 50 shares at this price level should bode well for you for the long haul. If it falls further then there is even more opportunity there. I wish you the best with your NSC holdings.

      Take care!

  4. says

    Saw the title of this post and was pretty sure it would be NSC with the big drop yesterday. I fired some excess cash at NSC this morning as well; 19 shares at 65.71. Hope it doesn’t dip more…only because I don’t want to get too overweight in this company lol. Now own 32 shares.

    • says

      Art,

      Nice buy. Looks like we’re all kindred spirits here and in welcome company. I love it.

      I hear you on it not dipping too much further from here. I’m already pretty well allocated to NSC at this point, so if it drops another 5-10% it would make it hard not to buy more. We’ll see how it goes.

      Great price!

      Best regards.

  5. says

    I don’t know, Sept 26th, 2008 and that pursuing drop before election terms again scares me..
    History does repeat itself.

    I know if it’s long term, it will recover, and their dividends weren’t flinching when they were down 50%, and i do know that was a housing bubble burst market crash, that was able to recover after some goverment debt. But no laws were put into place to prevent another housing mortgage bubble. Consumers and lenders may make the same mistakes on housing mortgages with over lent and over spent again.

    1) Gold companies were running promotions to buy your gold, they bought loads of it for a reason, and so did China and India this year. Now the Markets are at peaks and they have stopped promoting their buying frenzies from consumers and other governments. Are they waiting for another market crash and record high gold prices again?

    I do hate speculation, but something doesn’t feel quite right about these scenarios.

    Either way NSC held up as one of the strongest stocks during the crash of 2008!

    • says

      Ahh, bought 32 shares for long term anyways, lol. I always buy Railroads when i play monopoly. Prefer them on discount or auction of course.

      This company is solid.
      If coal deminishes and nuclear, wind, solar replace it, railroads will still transport those generators, motors, cement rad waste containment shipments, etc with the vamped up construction of renewable plants being built. (or if diaster strikes, Coal will be bought from other countries and transported on NSC to power backup electricity).

      Since electric cars are the future for every human on earth, coal, nuclear, wind, solar, hydroelectric, geothermal, wireless power transfer, will be on the demand of all consumers. Railroads are the infrastructure for all these Electric Plants!

    • says

      Freeyourchains,

      Excellent points. Even if coal drops off significantly, the railroads will still have other goods to transport. And, NSC isn’t the only railroad that transports a large amount of coal.

      Great purchase. I’m with you on buying the railroads in Monopoly. I always go right for the railroads when I play that game. If you lock up all 4 you’re almost guaranteed to win.

      Best wishes!

    • says

      Adam,

      I’m with you. The business is solid (railroads will be around 100 years from now), the growth is there and the payout ratio is fairly low.

      Great purchase. May it bode well for you and I!

      Take care.

  6. says

    Their fundementals are strong. Good long term choice and diversifies my portfolio (i mean, railroads?? is this 1901??).
    Bought 16 shares at 65.26…pulled trigger too early as ended day at 65.00.

    Thanks for finding this one!

    • says

      Dtmheat,

      Thanks for stopping by.

      I hear you. Funny enough…the more things change the more things stay the same. Investing in Coca-Cola and railroads was profitable 100 years ago, and it still is today. Look at Warren Buffett.

      You got a great price there. I should have waited until today, but you never know how long Mr. Market will be depressed for. I pulled the trigger at an attractive price-point, but if it falls significantly from here I’ll be compelled to purchase more.

      Thanks for following along and commenting.

      Best wishes!

    • says

      Westphalian,

      I’m not sure what you mean there, but if you’re staying patient to see what happens then that’s always a good idea as well. I was already long on NSC, so I’m okay with adding to my position on weakness.

      Best regards.

    • says

      Ninja,

      Thanks for stopping by.

      I agree with you. Topping up holdings with fundamentally strong companies on major dips is a prudent strategy!

      Macroeconomics is hurting NSC certainly, along with a lot of other companies. The global economy is just in a tough spot right now. Best to buy on the dips, as always!

      Best wishes!

  7. says

    Nice one Mantra. I bought some as well, at pretty much the same price! It seems to me the forward looking guidance might lower the dividend growth a little, but I still expect nice dividend increases in the future.

    • says

      CI,

      I just seen your blog and commented there. We bought at almost the same price, but you got in slightly below me. Nice move, my friend!

      Even if the growth slows from here, they’re well into attractively valued territory. I got my fair value using much lower figures than the historical average for NSC. I think we’ll be amply rewarded in the long-term on this one.

      Take care!

  8. says

    i debated buying some, but ultimately decided against it. i think there may be a bigger correction in the next month or two that will allow for a better entry point. transports are very cyclical, so I try to time my purchases a bit more than with my purchases of consumer staples stocks.

    • says

      kolpin,

      You may very well be right on the bigger correction being around the corner, which would allow for better entry points on this name and many others.

      However, if that correction doesn’t come and the market continues upward I have my money working for me. If the correction comes then I’ll simply buy more shares for the same amount of capital.

      Best wishes!

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