- Oops!Something went wrong.Please try again later.
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.
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
Headquartered in Omaha, Union Pacific (UNP) is a Transportation stock that has seen a price change of 2.3% so far this year. Currently paying a dividend of $1.07 per share, the company has a dividend yield of 2.01%. In comparison, the Transportation - Rail industry's yield is 1%, while the S&P 500's yield is 1.39%.
In terms of dividend growth, the company's current annualized dividend of $4.28 is up 10.3% from last year. Union Pacific has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 14.93%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Union Pacific's current payout ratio is 47%, meaning 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 $10.02 per share, representing a year-over-year earnings growth rate of 22.34%.
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. That said, they can take comfort from the fact that UNP is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Union Pacific Corporation (UNP) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research