Following the trend of dividend hikes,
Union Pacific Corp.
) will increase its shareholders' wealth by raising quarterly
dividend. The board of directors of this largest class 1 freight
railroad operator in the U.S. has voted to increase the company's
quarterly dividend rate by 14.5% to 79 cents per share from the
existing 69 cents. The new dividend will be paid on Oct 1, 2013
to stockholders of record as of Aug 30.
The dividend hike reflects the company's strong free cash flow
and confidence in generating solid reinvestable returns for its
shareholders. The regular dividend of 79 cents equates into an
annual dividend of $3.16, which translates into a dividend yield
of 1.94% based on the current market price.
This is the second dividend hike by Union Pacific in the last
one year after the railroad operator raised its quarterly
dividend by 15% in Nov 2012 from 60 to 69 cents. The company has
paid dividends on its common stock for 114 consecutive years. The
recent hike dividend reflects an almost 150% increase in the last
Investor confidence in Union Pacific was also solidified with
its recent earnings beat. For the second quarter of 2013, the
company reported adjusted earnings of $2.37, surpassing the Zacks
Consensus Estimate of $2.35 and year-ago earnings of $2.10.
Better-than-expected earnings were aided by higher pricing and
an improvement in operating ratio. However, quarterly revenue of
5,470 missed the Zacks Consensus Estimate of 5,497 million.
Most of Union Pacific's segments reported steady performance
in the second quarter of 2013. The company exited the quarter
with free cash flow of 833 million reporting 161% annualized
growth. We believe such strong segmental and cash flow growth has
allowed Union Pacific to raise its dividend, which in turn will
help the company to attain its target pay-out ratio of
Union Pacific's rival
) recently hiked its dividend by 7.1% from 14 cents to 15 cents
per share, while
Norfolk Southern Corp.
) raised its dividend by 4% from 50 cents to 52 cents per
Union Pacific currently carries a Zacks Rank #3 (Hold). Other
companies within the sector that is worth considering is
), which carries a Zacks Rank #2 (Buy).
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