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Norfolk Southern Corp. (NSC), Union Pacific Corporation (UNP): Does a Dividend Increase Make This Railroad a Buy?

Railroads are often seen as a bellwether for the broader economy because of the amount of retail and manufactured goods they transport across the nation. Norfolk Southern Corp. (NYSE:NSC) is one of the most well known railroads in the United States, operating approximately 20,000 route miles in 22 states.

Norfolk Southern Corp. (NYSE:NSC)

The railroad industry counts Warren Buffett, one of the world’s most famous investors of all time, as a fan. Buffett is a well-known railroad enthusiast and proved it when he bought Burlington Northern Santa Fe, then the nation’s second-largest railroad, for $34 billion in 2009.

Norfolk Southern Corp. (NYSE:NSC) trades for a cheap valuation and recently increased its dividend. Should you add Norfolk Southern Corp. (NYSE:NSC) to your portfolio?

A mixed second quarter report

Norfolk Southern Corp. (NYSE:NSC) recently released its second quarter report, which showed signs of progress in certain areas, but overall left the market unimpressed.

All told, Norfolk Southern Corp. (NYSE:NSC)’s diluted earnings per share declined 9% from the year-ago quarter, due largely to a 17% drop in coal shipments.

Overall, total railway operating revenues were $2.8 billion, representing a 3% decline year over year. Volumes rose 2%, and the company’s other two segments, General Merchandise and Intermodal, saw revenue increases. Clearly, coal is the elephant in the room.

On a positive note, Norfolk Southern Corp. (NYSE:NSC) increased its dividend by 4%, to $0.52 per share. Norfolk Southern has a long history of paying dividends. In fact, the company has paid a common stock dividend every quarter for 124 years. More recently, this is Norfolk Southern’s seventh dividend increase in the last five years.

Fellow U.S. railroad Union Pacific Corporation (NYSE:UNP) is firing on all cylinders over the past several quarters.

In what proved to be a difficult year for most railroads, Union Pacific Corporation (NYSE:UNP) outperformed its U.S. rivals. 2012 was actually the most profitable year in Union Pacific Corporation (NYSE:UNP)’s 150-year history. The company reported 23% growth in diluted earnings per share, with EPS coming in at $8.27 per share.

In addition, the good times kept up in the first quarter of 2013. Union Pacific Corporation (NYSE:UNP) racked up another profit record, seeing another 13% growth in diluted EPS.

Making things even better, the company recently reported second-quarter results that saw another 13% growth in diluted earnings per share and 5% growth in operating revenues.

An interesting alternative to the two U.S.-based railroads is Canadian Pacific Railway Limited (USA) (NYSE:CP), which, as its name suggests, is headquartered in Calgary and operates mainly throughout Canada.

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