Last update on 2024-06-27

Union Pacific (UNP) - Dividend Analysis (Final Score: 8/8)

Union Pacific (UNP) dividend analysis shows outstanding performance with an 8/8 score based on an 8-criteria system.

Short Analysis - Dividend Score: 8

We're running Union Pacific (UNP) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis for Union Pacific (UNP) scores the company's dividend policy and performance against an 8-criteria system, achieving a score of 8. Key findings demonstrate a dividend yield higher than the industry average, a conservative payout ratio, and well-covered dividends by both earnings and cash flow. However, the average annual dividend growth rate reveals significant volatility, and there is an inconsistency in maintaining growth above 5%. The company boasts over 25 years of dividend payments, reliable stock repurchase patterns, and a general commitment to returning value to shareholders despite some isolated financial strains.

Insights for Value Investors Seeking Stable Income

While Union Pacific offers a robust dividend yield and a strong history of dividends and stock repurchases, the significant fluctuations in their dividend growth rate might be a cause for concern for investors seeking consistent growth. Nonetheless, the overall financial health and commitment to value return potentially make Union Pacific a worthy candidate for dividend-focused investors to consider adding to their portfolio, provided they're comfortable with some level of growth inconsistency.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield compares a company's annual dividend to its share price.

Union Pacific (UNP) currently has a dividend yield of 2.1171%, which is notably higher than the industry average of 1.47%. Analyzing the past 20 years, Union Pacific's dividend yield has generally been higher or on par with the industry average, reflecting a commitment to returning value to shareholders. The yield spiked during years like 2015 (2.8133%) and 2020 (2.4533%), indicating robust dividend distributions relative to stock price. This trend is favorable for income-focused investors, signaling a strong and consistent income stream. Additionally, in the context of increasing stock prices—e.g., from $78.2 in 2015 to $245.62 in 2023—the increasing dividend per share from $2.2 to $5.2 illustrates the company's growth in profitability. Overall, Union Pacific's higher-than-average dividend yield implies reliability and a solid income-generating investment.

Average annual Growth Rate higher than 5% in the last 20 years?

Dividend Growth Rate is the annualized percentage rate of growth that a particular stock's dividend undergoes over a period of time. A growth rate higher than 5% indicates strong financial health and a commitment to returning value to shareholders.

Examining the Dividend Ratio from 2003 to 2023, we see considerable fluctuation in Union Pacific's annual dividend payouts. Most notably, there are years such as 2005 and 2006 where dividends per share are zero. However, in comparing values from 2003 ($19.2771) and 2023 ($2.3622), there's a notable inconsistency. The Average Dividend Ratio over these two decades is around 17.15, but this average masks a rather volatile dividend history with drastic dips and peaks. As for whether Union Pacific's Dividend Growth Rate exceeds 5%, the mixed numbers and volatile history would suggest a complex landscape. Continuous high growth is an area of concern and despite some high growth years, this inconsistent trend overall doesn't ensure a stable dividend growth above 5%. This inconsistent trend can be considered bad for long-term dividend growth investors seeking stable returns.

Average annual Payout Ratio lower than 65% in the last 20 years?

The average payout ratio indicates what proportion of earnings a company pays to shareholders in dividends.

Union Pacific's (UNP) average payout ratio over the last 20 years is approximately 33.91%, well below the 65% threshold. This suggests that UNP has maintained a conservative dividend payout strategy, prioritizing capital retention for reinvestment or debt reduction. This trend is favorable, showing financial discipline and providing room for future dividend increases even if earnings fluctuate. Maintaining a lower payout ratio also supports long-term shareholder value by allowing for sustainable business growth.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings. This criterion ensures that a company generates sufficient profit to support its dividend payouts without compromising financial stability. A ratio below 1 indicates that earnings surpass dividend payouts, suggesting financial health.

Union Pacific's (UNP) dividends are consistently well covered by earnings from 2003 to 2023. The ratio of dividends per share covered by earnings per share fluctuates between 0.167 in 2003 to 0.496 in 2023. Generally, a lower ratio is preferable, indicating more earnings relative to dividends. During the financial downturn of 2008 and the more recent COVID-19 pandemic in 2020, the ratios remained below 0.5, showcasing the company's resilience and robust earnings. However, a notable drop was seen in 2017 (0.185), likely influenced by significant events such as tax reforms impacting overall earnings. Over the two-decade span, the upward earnings trend provides confidence in UNP's ability to sustain and potentially grow dividend payments, making it an attractive investment for dividend-seeking investors.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow assesses if a company's free cash flow sufficiently covers its dividend payouts over a period. A higher ratio indicates better coverage and financial stability.

Throughout the years, Union Pacific (UNP) has had varying degrees of success in covering its dividend payouts using its free cash flow. Notably, the ratio shows fluctuating trends: a high of 3.156 in 2006 and a low of 0.320 in 2011. Generally, a ratio above 1 suggests strong coverage. UNP consistently maintained a ratio above 0.4 since 2003, with peaks in coverage in some years, indicating that their dividends are reasonably covered by their cash flow. However, the lack of consistent ratio may raise concerns about long-term sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends are a hallmark of financially healthy companies. For income-seeking investors, dividend consistency is crucial as it provides a predictable income stream. Evaluating whether Union Pacific has avoided significant dividend cuts (greater than 20%) over the past 20 years gives insight into management's commitment to rewarding shareholders and the resilience of the company's cash flows.

Union Pacific has shown an impressive track record of increasing its dividend over the past 20 years, growing from $0.2475 per share in 2003 to $5.20 per share in 2023. This demonstrates an extraordinary annualized growth rate, reflecting strong financial health and shareholder commitment. However, the presence of a year with a dividend drop exceeding 20% indicates a significant, likely isolated financial strain. A detailed annual review might reveal the underlying reasons, such as economic downturns or significant operational disruptions.

Dividends Paid for Over 25 Years?

Dividends Paid for Over 25 Years: This assesses the company's capability to consistently return value to shareholders over a long period.

Union Pacific (UNP) has demonstrated remarkable consistency in paying dividends for over 25 years. Starting from a dividend per share (DPS) of $0.2 in 1998, the company has progressively increased its dividends nearly every year, reaching $5.2 in 2023. This trend indicates a strong commitment to returning value to shareholders and suggests a reliable earnings capability. The steady increase over these years also provides reassurance to investors regarding the company's financial stability and management's confidence in its future prospects. Evidently, this is a positive trend and highlights UNP's stability and attractiveness as a dividend-paying stock.

Reliable Stock Repurchases Over the Past 20 Years?

Criterion of Reliable Stock Repurchases Over the Past 20 Years

Union Pacific (UNP) has demonstrated a reliable pattern of stock repurchases over the past 20 years. For 18 of these years, from 2004 to 2023, the company consistently reduced its outstanding shares, as evidenced by the decline in share count from 1,072,000,000 shares in 2003 down to 609,200,000 shares in 2023. The average annual rate of repurchase stands at approximately 2.7637%, indicating a steady effort to enhance shareholder value by returning capital to shareholders. The trend of consistent repurchases is a positive indicator of robust cash flow, disciplined capital allocation, and management's confidence in the company's financial stability. Such reliability in buybacks generally supports the share price, improves financial metrics like earnings per share (EPS), and demonstrates an entrenched commitment to shareholder interests.