Union Pacific’s (UNP, Financial) dividend was increased by 10%. Its overall yield is above that of the S&P 500 Index at 2.42%. The company has paid a dividend since January of 1993.
Union Pacific maintains over 31,000 miles of track and leads the industry in total revenue. Most of the lines are in the western United States. The company offers freight transportation services for multiple sources of goods, including grains, commodities, food and beverage and other agricultural products. It also provides transportation for automotive products, chemicals, petroleum fertilizers, coal, metals, minerals, paper and lumber. The company owns about a quarter of Mexican railroad company Ferromex, which provides approximately 10% of its overall revenue. The company was founded in 1862 and is headquartered in Omaha, Nebraska.
Union Pacific has maintained a three-year growth rate of dividends of 15.6%. Union Pacific currently ranks first in yield within the large-cap services railroad, auto parts category. The quarterly dividend for the December payment will be 61 cents versus the prior year rate of 55 cents per share.
The dividend will be paid at the new higher rate on Dec. 29 to shareholders of record at close of business on Nov. 30. Union Pacific is currently priced at $99.83. Listed in the table below are the quarterly dividend payments since 2010.
| Date | Quarterly Dividend |
| Jan. 6, 2017 | 33 cents |
| Oct. 5 | 31 cents |
| June 29 | 31 cents |
| March 30 | 31 cents |
| Jan. 6 | 31 cents |
| Sept. 30, 2015 | 30 cents |
| June 30, 2015 | 30 cents |
| March 31, 2015 | 30 cents |
| Dec. 30, 2014 | 30 cents |
| Oct. 1, 2014 | 29 cents |
| July 1, 2014 | 29 cents |
| April 2, 2014 | 29 cents |
| Dec. 31, 2013 | 29 cents |
| Oct. 2, 2013 | 28 cents |
| July 2, 2013 | 28 cents |
| April 3, 2013 | 28 cents |
| Jan. 2, 2013 | 28 cents |
| Oct. 3, 2012 | 27 cents |
| July 3, 2012 | 27 cents |
| April 3, 2012 | 27 cents |
| Jan. 4, 2012 | 27 cents |
| Oct. 5, 2011 | 26 cents |
| June 29, 2011 | 26 cents |
| March 30, 2011 | 26 cents |
| Jan. 5, 2011 | 26 cents |
| Sept. 29, 2010 | 25 cents |
| June 30, 2010 | 25 cents |
| March 30, 2010 | 25 cents |
Quantative analysis
We examine Union Pacific upon our five key criteria, which include:
| Category | Value | Score |
| Dividend Yield | 2.42% | 230 |
| Dividend Growth (3 to 6 year avg) | 19.6% | 68 |
| Forward P/E | 18.15 | 91 |
| S&P Financial Rating | A | 40 |
| Beta | 1.05 | 150 |
| Total Score | 579 |
Additional quantitative information on price-sales (P/S) ratio and historical yield:
| % Yield | 3 Year Div. Growth Rate | 6 Year Div. Growth Rate | SPS 2016 | P/S Ratio | 10 yr P/S Low | 10 yr P/S High | 5 yr lowest Yield % | 5 yr max Yield % |
| 2.42% | 15.6% | 23.5% | 24.2 | 4.13 | 1.67 | 4.43 | 1.49% | 3.25% |
Positives
- Union Pacific maintains a credit rating of A. This is investment grade.
- Union Pacific dividend yield is above that of the S&P 500 Index.
- Union Pacific has paid out a dividend consecutively for the last 23 years.
- Union Pacific current dividend yield (2.42%) is above its five-year average historical dividend yield of 2.33%.
Negatives
- Union Pacific is trading at the top of its 10-year average price-sales (P/S) average.
- Union Pacific maintains a beta of 1.05, higher than the average company.
Latest earnings & overall analysis
Union Pacific released its last earnings report on Oct. 20. Its third-quarter profit dropped by 13% as the company continues to struggle with freight volume. Total carload revenue dropped by 6% as the railroad continues to struggle with declining demand for its freight-hauling services. Freight volumes, as measured by total revenue carloads, slumped 6% compared to the prior year period.
The stock of Union Pacific tumbled by 7% that day, the most since 2009, as the largest publicly traded railroad signaled that pricing power has eroded with a decline in freight demand. Union Pacific reported third quater EPS were $1.36 a share. That fell far short of the $1.40 average analyst estimate. Revenue also cascaded down, dropping 7% to $5.17 billion. The company guided to low single-digit volume declines for the fourth quarter and 6% to 8% drop in revenue for the full year.
Coal was a continual problem for Union Pacific. Coal revenue dropped 19% in the quarter to $728 million. Demand for coal has been hurt for the last several years as utility companies move on to more cost-efficient and cheaper natural gas. Costs were also up, rising just over 1%. One bright spot in the report was from the grains side. Carloads of grains were up 27% in the third quarter. This assisted the company's agricultural products division to an overall 6% rise in revenue. Union Pacific exited the third quarter with cash and cash equivalents of $1,909 million.
One key element to its future success is the outlook for coal. Although coal will continue down the path of obscurity as natural gas companiess take market share, Union Pacific does have large presence within the Powder River Basin. And coal produced over $2 billion of revenue for the railroad this year. One benefit is that the coal from the Power River Basin is much cheaper to deliver than almost all its competitors, especially coal from the Appalachian area.
Overall, Union Pacific is the leading railroad company in its industry. But its reliance on coal and poor performance in both earnings and revenue in the third quarter make the company a more risky bet today than other companies within the industrial sector. The company trades at a forward price-earnings (P/E) ratio of over 18. Additionally, its P/S ratio is well above 4, much higher than its 10-year low of 1.67. Although its dividend growth rate is impressive and well above average, its yield at 2.42% is also below its historical high of 3.25%.
Based on its high P/E, P/S, moderate yield and higher than market beta, Union Pacific does not qualify as a member of our Top 100 Dividend Stocks.
Disclosure: I have no position in United Pacific.
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