Union Pacific: On Track for Dividends

03/09/2017 7:00 am EST

Focus: INDUSTRIALS

Headquartered in Omaha, Nebraska, Union Pacific Corporation (UNP) is the largest public railroad in North America, and one of the world’s largest transportation companies, observes Mario Medina, contributing editor to Vita Nelson's DirectInvesting.

The company operates from West Coast and Gulf Coast ports to eastern gateways, connects with Canada's rail systems and serves approximately six Mexico gateways. Its business mix includes agricultural products, automotive, chemicals, coal, industrial products and intermodal.

Its current total market capitalization of $87.5 billion makes UNP a large cap stock and its long history of consistent revenues and earnings growth makes it a solid company.

It is considered a diversified business with wide economic moat and durable competitive advantages over rivals, and enjoys a solid corporate culture. According to Yahoo! Finance, consensus estimates call for the company to earn about $5.64 per share this year, up from $5.09 per share in 2016, and to earn about $6.36 in 2018.

Union Pacific Corp. has paid dividends to investors since 1900, and has increased its payments for 6 consecutive years at an average rate of 19.4%. Its quarterly dividend payment of $0.61 currently provides a yield of 2.14%.   

A hypothetical investment in Union Pacific Corp. has grown cumulatively (including dividends reinvested) 10,420.42% during the last forty years.

UNP still has room for significant dividend growth in the coming years, since the company's current Dividend Payout Ratio (dividend payments as a percentage of its earnings), is just 43%.

According to Morningstar, the stock is trading 4.9% below its Fair Value Estimate, making it attractive for investors with a long-term investment horizon.

Technically (from the chart’s perspective) UNP also looks attractive, trading 13.1% below its all-time high, while it is forming a long price consolidation pattern between $70 and $123 approximately, in which $70 is acting as a strong technical support level.

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