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The Recently Recommended Monthly Stock Special
Recently Recommended

The recently recommended company is *Union Pacific Corp. (UNP)

Company Information:

Incorporated in Utah in 1969 and headquartered in Omaha, Nebraska, Union Pacific Corporation (UNP) is the largest public railroad in North America, and one of the world’s largest transportation companies. Its business mix includes agricultural products, automotive, chemicals, coal, industrial products and intermodal. The Company operates from West Coast and Gulf Coast ports to eastern gateways, connects with Canada's rail systems and serves approximately six Mexico gateways. Its current total market capitalization of $114.7 billion makes UNP a mega capitalization stock (a mega-cap stock has a market capitalization value of more than $100 billion) and its long history of consistent revenues and earnings growth makes it a solid company.

 

It is considered a well-diversified business with a wide economic moat and a durable competitive advantage over rivals that also enjoys a solid management and corporate culture. According to Yahoo! Finance, consensus estimates call for the company to earn about $7.55 per share this year, and to go to about $9.04 per share in 2021. Union Pacific has paid dividends to investors since 1900, and has increased its payments for seven consecutive years. During the past five years it has increased its dividends at an average rate of 13.3%, and its quarterly payment of $0.97 per share currently provides a yield of 2.34%.

 

The value of dividends reinvestment: A hypothetical investment in Union Pacific has grown cumulatively (including dividends reinvested) 10,165.05% during the past forty years. The same investment has grown only 4,545.89% during the same period of time, excluding dividends. During the same period of time, a hypothetical investment in the S&P 500® index (thru the Vanguard 500 Index Admiral (VFIAX) has grown cumulatively 7,116.71%, including dividends reinvested. According to the data and calculations of the financial website dqydj.com (don’t quit your day job), a periodic monthly investment of $100 in UNP for the past 40 years would has grown to $38.3 million, including dividends reinvested.

 

The stock exhibits a healthy Dividend Payout Ratio (DPR is the proportion of earnings paid out as dividends to shareholders) of 45%, which means the company is paying out 45% of all its net income in dividends, and is retaining a large percentage of earnings to reinvest or grow the business. Its average DPR during the past five years is 38%. Its current Price to Earnings ratio (P/E --a measure of valuation) of 19.25 is 1.4% below the US Market Index, and technically (from the chart’s perspective) UNP also looks attractive, trading 10.6% below its all-time high), while it is forming a long price consolidation pattern between $189 and $105 approximately, in which $105 is acting as a strong technical support level.

 

The actively managed mutual funds Vanguard Dividend Growth Inv. and American Funds Washington Mutual A are major shareholders of UNP, holding 0.99% and 0.97% of its shares respectively. The stock is also one of the 63 holdings of the mutual fund managed by Moneypaper Advisors, the MP 63 Fund (DRIPX). UNP’s main competitors are CSX Corp. (CSX), Norfolk Southern Corp. (NSC) and Kansas City Southern (KSU). Its 5-year Beta (a measure of the volatility, or systematic risk in comparison to the market as a whole as evidenced by the S&P 500® Index) is 1.06 so the stock is 6% more volatile than the Market.

 

Best and worst years during the past 40 years: Its best year was 1980, in which UNP returned, excluding dividends, 118.0%. On the flip side, its worst year was 2015, when the stock declined 34.4% excluding dividends. UNP’s dividend reinvestment plan charges no fees for cash investing, dividend reinvestment, safekeeping, automatic investment or termination of the plan. With the stock being fundamental and technically attractive, this company is an appropriate holding for investors who wish to build a holding over the long term.

 

Disclosure: Mario Medina is a long-term investor in Union Pacific Corp. and his investment strategy consists on investing small amounts periodically (also known as dollar-cost average or DCA), always with a long-term view. The author is co-manager of the MP 63 Fund (DRIPX), which holds a position in the company. The author wrote the article himself and it expresses his own opinions. The author has no business relationship with UNP and this article is not intended as a recommendation to invest as the information published does not take into account any subscriber's personal finances, goals or risk tolerance. Accordingly, you should be aware of all the risks associated with any financial investment and should consult an independent financial advisor for any personal investment advice. Past results illustrated in the article are for reference and educational purpose only and do not guarantee future performance.

 

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