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Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Union Pacific in Focus
Based in Omaha, Union Pacific (UNP) is in the Transportation sector, and so far this year, shares have seen a price change of -3.12%. The railroad is currently shelling out a dividend of $1.07 per share, with a dividend yield of 2.12%. This compares to the Transportation - Rail industry's yield of 1.08% and the S&P 500's yield of 1.41%.
In terms of dividend growth, the company's current annualized dividend of $4.28 is up 10.3% from last year. Over the last 5 years, Union Pacific has increased its dividend 5 times on a year-over-year basis for an average annual increase of 14.93%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Union Pacific's current payout ratio is 47%. This means it paid out 47% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, UNP expects solid earnings growth. The Zacks Consensus Estimate for 2021 is $10 per share, representing a year-over-year earnings growth rate of 22.10%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, UNP is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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Union Pacific Corporation (UNP) : Free Stock Analysis Report
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