Union Pacific: Splitting Rails

06/30/2014 9:00 am EST

Focus: STOCKS

Neil Macneale III

Editor, 2 for 1 Stock Split

Each month, Neil Macneale assesses the stocks that have announced stock splits, and selects one for the model portfolio of his 2-for-1 Stock Split Newsletter. Here, he looks at the latest addition, a railroad stock.

Earnings announcements and split announcements are few and far between right now but should pick up in July with second quarter results coming in. I see no problems associated with a slower pace in the markets and the financial world in general.

I’m very comfortable with how things are moving along and would be happy to have the “summer doldrums” extended to last all year and then some.

Meanwhile, railroad stocks were the backbone of many portfolios “back in the day” and still have a special appeal for many investors. Warren Buffet made his biggest investment ever a few years ago when he bought Burlington Northern Santa Fe (BNI).

This month’s pick will be the second railroad in our current portfolio, after Canadian National Railway (CNI), and I’m pleased to have it back. Union Pacific (UNP) was in the 2-for-1 portfolio from June ‘08 through September ‘11 and made a very good showing during some tough times.

UNP is the largest railroad in the country and it’s also one of the best managed, with higher than average profits and return on equity and lower debt than its peers.

UNP pays a respectable 1.8% dividend. The dividend has been growing at 27% a year over the last five years. The stock’s volatility is just about par for the market.

This is not a particularly cheap stock, but Union Pacific is a company as solid as they come and it’s highly unlikely it will be going off the rails. We are adding the stock to our model 2-for-1 portfolio.

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