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Union Pacific Hikes Dividend by 10%, Unveils Buyback Plan

Zacks Equity Research

Union Pacific Corporation UNP announced that its board of directors has approved a new share repurchase program to buy up to 150 million of its common stock. The plan, which takes effect from Apr 1, 2019, will expire on Mar 31, 2022.

Also, the railroad operator raised its quarterly dividend by 10%. This is the fourth dividend hike by the company since November 2017.

Notably, this Omaha, NE-based company has been consistently rewarding its shareholders through dividends and buybacks for quite some time. Evidently, Union Pacific returned around $10.5 billion to its stockholders in 2018. This reflected a 75% year over year increase. Of the $10.5 billion, $8.2 billion and $2.3 billion were returned through buybacks and dividends, respectively.

Twin Shareholder-Friendly Moves

This Zacks Rank #2 (Buy) company hiked its quarterly dividend to 88 cents per share (annualized $3.52 per share), representing a 10% improvement from the previous payout of 80 cents per share (annualized $3.2 per share). The new dividend, which has been approved by the company’s board of directors, will be paid on Mar 29, 2019 to its stockholders of record as of Feb 28. The dividend yield based on the new payout and the Feb 7 closing market price is approximately 2.2%, which compares favorably to its industry’s dividend yield of 1.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We believe that this dividend hike not only highlights Union Pacific’s commitment to create value for shareholders but also underlines the carrier’s healthy financial condition and confidence in its business, going forward.  The company intends to maintain a dividend payout ratio between 40% and 45% in the 2018-2020 timeframe. Additionally, it is confident about generating solid free cash flow over the next few years.

In fact, this new three-year share buyback program marks another move by Union Pacific to add value to its stockholders. The plan, which permits the repurchase of 21% of outstanding shares, replaces the current buyback program, which ends on Mar 31. The company’s shareholder-friendly attitude can be made out from the fact that it has bought back 38% of outstanding shares for approximately $31.9 billion till date, since the announcement of its share repurchase program in January 2007.

Notably, the announcement of the latest repurchase plan is in line with the company’s objective to buyback approximately $20 billion of shares between 2018 and 2020.

Union Pacific Corporation Price

 

Union Pacific Corporation Price | Union Pacific Corporation Quote

Dividend Hikes: Not Uncommon for Railroads

The current tax law, which came into force in December 2017, is a boon to railroads as far as investor-oriented activities like dividend payments are concerned. The significant reduction in corporate tax rate under the current law has boosted cash flow as well as earnings of transportation stocks. Owing to the significant cuts in tax bills, more cash remains in the hands of these companies to fund capital expenditures, buybacks and dividends among others.

Apart from Union Pacific, other railroad operators to have hiked dividends this year include CSX Corporation CSX, Norfolk Southern Corporation NSC and Canadian National Railway Company CNI.

As investors prefer an income generating stock, a high dividend yielding one is much coveted. Needless to say that investors are always on the lookout for companies with a track record of consistent and incremental dividend payments.

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Canadian National Railway Company (CNI) : Free Stock Analysis Report
 
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