Here's What We Like About Union Pacific's (NYSE:UNP) Upcoming Dividend

NYSE:UNP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 28th of August to receive the dividend, which will be paid on the 30th of September.” data-reactid=”28″>Readers hoping to buy Union Pacific Corporation (NYSE:UNP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 28th of August to receive the dividend, which will be paid on the 30th of September.

Union Pacific’s next dividend payment will be US$0.97 per share, and in the last 12 months, the company paid a total of US$3.88 per share. Looking at the last 12 months of distributions, Union Pacific has a trailing yield of approximately 2.0% on its current stock price of $191.57. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Union Pacific has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Union Pacific ” data-reactid=”30″> View our latest analysis for Union Pacific

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That’s why it’s good to see Union Pacific paying out a modest 48% of its earnings. A useful secondary check can be to evaluate whether Union Pacific generated enough free cash flow to afford its dividend. It distributed 48% of its free cash flow as dividends, a comfortable payout level for most companies.

It’s positive to see that Union Pacific’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

here to see the company’s payout ratio, plus analyst estimates of its future dividends.” data-reactid=”37″>Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

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Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it’s a relief to see Union Pacific earnings per share are up 7.0% per annum over the last five years. Management have been reinvested more than half of the company’s earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Union Pacific has lifted its dividend by approximately 22% a year on average. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Should investors buy Union Pacific for the upcoming dividend? Earnings per share have been growing moderately, and Union Pacific is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Union Pacific is halfway there. Overall we think this is an attractive combination and worthy of further research.