All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Headquartered in Omaha, Union Pacific (UNP) is a Transportation stock that has seen a price change of 3.61% so far this year. The railroad is paying out a dividend of $1.34 per share at the moment, with a dividend yield of 2.27% compared to the Transportation - Rail industry's yield of 1.58% and the S&P 500's yield of 1.52%.
Looking at dividend growth, the company's current annualized dividend of $5.36 is up 1.5% from last year. Over the last 5 years, Union Pacific has increased its dividend 3 times on a year-over-year basis for an average annual increase of 7.92%. Looking ahead, future dividend growth will be dependent on earnings growth and 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 48%, meaning it paid out 48% of its trailing 12-month EPS as dividend.
UNP is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2025 is $11.53 per share, which represents a year-over-year growth rate of 3.97%.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer 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 have to be mindful 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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