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How Union Pacific’s Dividend Has Varied Historically

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May. 18 2018, Published 2:26 p.m. ET

UNP’s Q2 2018 dividend

On May 10, Western US rail freight giant Union Pacific (UNP) declared a quarterly cash dividend of $0.73 per share on its common stock. In the first quarter, UNP raised its quarterly cash dividend from $0.665 per share to $0.73 per share. The company’s quarterly cash dividend on equity shares is payable on June 29 to stockholders of record on May 31.

In the fourth quarter of 2017, the Omaha-headquartered rail carrier increased its quarterly cash dividend by 10.0% to $0.665 per share from $0.605 per share in the third quarter of 2017. Union Pacific reported nearly 770.3 million shares outstanding on May 17, 2017. 

The dividend payment of $0.73 per share translates into a quarterly cash dividend of ~$562.3 million in the second quarter. In fiscal 2017, the railroad paid ~$1.9 billion in dividends.

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UNP’s past dividend growth

In the span of two quarters, Union Pacific has increased its quarterly cash dividend by 20.0%. On an annualized basis, the company’s dividend growth was 20.7% in fiscal 2018 compared with fiscal 2017. In fiscal 2017, UNP’s dividend growth was 7.3% YoY (year-over-year), whereas it was 4.9% in fiscal 2016. The company has paid dividends on its common stock for 119 consecutive years.

The weekly railcar traffic data released by the AAR (Association of American Railroads) includes intermodal volumes along with carload traffic. The AAR revealed that UNP’s year-over-year freight volume growth was lower than the average growth of US railroads (IYT) in 2018 year-to-date and in 2017. This trend indicates slowing business prospects. 

UNP’s capital expenditure-to-revenue ratio was the lowest among its peer group in 2017. UNP’s dividend growth at the end of 2017 and the beginning of 2018 benefited from lower taxes resulting from the Tax Cuts and Jobs Act.

US peers: Per share dividend and growth

In the first quarter of 2018, Norfolk Southern (NSC) raised its cash dividend on its common stock by 18.0% to $0.72 per share from $0.61 in the fourth quarter of 2017. On February 11, CSX (CSX) increased its cash dividend to $0.22 per share from $0.20 in the fourth quarter of 2017, indicating a 10.0% year-over-year increase. 

Kansas City Southern (KSU) paid a cash dividend of $0.36 per share in the first quarter, a 9.1% increase from $0.33 per share in the third quarter of 2017.

In the next part, we’ll assess the impact of lower taxes on Union Pacific’s free cash flows.

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