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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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 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 -15.34% since the start of the year. Currently paying a dividend of $1.3 per share, the company has a dividend yield of 2.44%. In comparison, the Transportation - Rail industry's yield is 0.87%, while the S&P 500's yield is 1.76%.
Looking at dividend growth, the company's current annualized dividend of $5.20 is up 21.2% from last year. Union Pacific has increased its dividend 4 times on a year-over-year basis over the last 5 years for an average annual increase of 13.86%. 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. Right now, Union Pacific's payout ratio is 45%, which means it paid out 45% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for UNP for this fiscal year. The Zacks Consensus Estimate for 2022 is $11.58 per share, which represents a year-over-year growth rate of 16.38%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer 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 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 Report
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