Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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
Union Pacific (UNP) is headquartered in Omaha, and is in the Transportation sector. The stock has seen a price change of 1.48% since the start of the year. The railroad is paying out a dividend of $1.34 per share at the moment, with a dividend yield of 2.32% compared to the Transportation - Rail industry's yield of 1.54% and the S&P 500's yield of 1.52%.
Taking a look at the company's dividend growth, its current annualized dividend of $5.36 is up 1.5% from last year. Union Pacific has increased its dividend 3 times on a year-over-year basis over the last 5 years for an average annual increase of 7.92%. 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 48%, meaning it paid out 48% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for UNP for this fiscal year. The Zacks Consensus Estimate for 2025 is $11.53 per share, which represents a year-over-year growth rate of 3.97%.
Bottom Line
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. But, not every company offers a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. 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 ReportThis article originally published on Zacks Investment Research (zacks.com).
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