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Understanding Union Pacific’s Share Repurchases in the Face of Rising Stock in 1Q16

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UNP’s share repurchase program

Union Pacific’s (UNP) stock price has risen by 14.6% since the beginning of 2016, but the company continued its share repurchase program in 1Q16. Can UNP maintain its current pace of stock repurchases?

In the first quarter of 2016, UNP repurchased shares 9.3 million shares, totaling $713.0 million. This represents a 31.9% YoY (year-over-year) decline from 1Q15. In 2015, the company returned $5.8 billion in cash to shareholders in the form of share purchases and dividend payments. This figure rose by 20% from 2014 levels. But UNP slowed the speed of its share repurchases in 1Q16, and since 2007, the company has repurchased 289 million shares, or 27%, of its outstanding equity shares.

Understanding Union Pacific's Share Repurchases in the Face of Rising Stock in 1Q16

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Dividends

In 1Q16, UNP paid a dividend of $465 million. This translates into a quarterly dividend of $0.55 per share in the reported quarter, representing no rise in dividend per share in the same period in 2015. But at the beginning of 2015, UNP aligned the timing of its dividend declaration and payment. UNP’s TTM (trailing-twelve-month) dividend yield was 2.51%. Its peers’ dividend yields were as follows during the same period:

  • Kansas City Southern (KSU)—1.37%
  • CSX Corporation (CSX)—2.67%
  • Norfolk Southern (NSC)—2.6%
  • Canadian Pacific (CP)—1.09%
  • Canadian National Railway (CNI)—1.72%

Investors interested in the transportation and logistics sector might consider the iShares US Industrials ETF (IYJ), which holds 5.0% in major US railroads.

In the next and final part, we’ll look at Union Pacific’s valuation.

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