Union Pacific (NYSE:UNP) Has Announced That It Will Be Increasing Its Dividend To $1.38

Union Pacific Corporation (NYSE:UNP) will increase its dividend from last year's comparable payment on the 30th of September to $1.38. This takes the dividend yield to 2.5%, which shareholders will be pleased with.

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Union Pacific's Future Dividend Projections Appear Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Union Pacific's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 28.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 40% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Union Pacific

Union Pacific Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of $2.00 in 2015 to the most recent total annual payment of $5.52. This means that it has been growing its distributions at 11% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Has Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Union Pacific has impressed us by growing EPS at 7.7% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

Union Pacific Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Union Pacific that investors need to be conscious of moving forward. Is Union Pacific not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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