All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Norfolk Southern in Focus

Based in Atlanta, Norfolk Southern (NSC) is in the Transportation sector, and so far this year, shares have seen a price change of -27.18%. The railroad is paying out a dividend of $1.24 per share at the moment, with a dividend yield of 2.29% compared to the Transportation - Rail industry's yield of 1.37% and the S&P 500's yield of 1.78%.

In terms of dividend growth, the company's current annualized dividend of $4.96 is up 19.2% from last year. In the past five-year period, Norfolk Southern has increased its dividend 4 times on a year-over-year basis for an average annual increase of 12.97%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Norfolk Southern's payout ratio is 39%, which means it paid out 39% of its trailing 12-month EPS as dividend.

NSC is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2022 is $13.69 per share, with earnings expected to increase 13.05% from the year ago period.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that NSC is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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