Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
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 26.41%. The railroad is paying out a dividend of $0.88 per share at the moment, with a dividend yield of 2.01% compared to the Transportation - Rail industry's yield of 1.18% and the S&P 500's yield of 1.98%.
Looking at dividend growth, the company's current annualized dividend of $3.52 is up 15% from last year. In the past five-year period, Union Pacific has increased its dividend 4 times on a year-over-year basis for an average annual increase of 11.97%. 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 43%, meaning it paid out 43% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for UNP for this fiscal year. The Zacks Consensus Estimate for 2019 is $9.07 per share, representing a year-over-year earnings growth rate of 14.66%.
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. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. 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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