Union Pacific To Share Its Growth With Its Shareholders

by Trefis Team
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UNP
Union Pacific Corporation
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The year 2017 has been a comeback year for Union Pacific Corporation (NYSE:UNP), as its stock has rallied close to 30% year-to-date. This surge in the company’s stock has been driven by the recovery in the coal and metal shipments, backed by the favorable business policies implemented by the new US government. Further, the gradual recovery in commodity prices has resulted in a steady rise in the company’s fuel surcharge fees, bolstering its top-line growth. Additionally, the railroad company’s efforts to bring down its operating ratio have also worked in its favor, improving its profitability significantly in the last few quarters. Given that Union Pacific is currently in a much better shape compared to last year, the company’s management has been willing to share its growth with its shareholders in the form of dividends and a share repurchase program, apart from the capital appreciation realized from the stock rise.

Dividends

Over the last couple of years, when the railroad industry was facing a downturn, Union Pacific’s dividend payments had dropped notably. For instance, the company’s annual dividend payments declined from $2.3 billion in 2015 to $1.9 billion in 2016, due to the weakness in the company’s performance. However, this year, given the rebound in the railroad industry (Read: A Turnaround Year For Union Pacific), we expect the company to pay out an annual dividend of $2.1 billion. Assuming that the macro-economic conditions will remain favorable for the industry in the coming years, we forecast UNP’s dividend to continue to grow at a steady rate of 5% over the next few years.Share Repurchase

Similar to the dividend payments, Union Pacific’s share buyback program had taken a backseat in the last two years, as the company was struggling to manage its declining cash flows. However, with the improving dynamics of the coal and metal industry, Union Pacific’s cash flows are expected to come in stronger this year. We expect the company to utilize these cash flows to repurchase its shares and further boost its profitability and shareholder returns. In fact, the company has already repurchased 27.1 million of its shares for over $2.9 billion year-to-date. Thus, we expect the company’s repurchase program to pick up speed in the next few years, which would imply higher returns for its shareholders.

Feel free to use our interactive platform to create our own scenarios and visualize the impact on Union Pacific’s stock price. We have a price estimate of $130 per share for the company, which is in line with its current market price.

See Our Complete Analysis For Union Pacific Corporation Here

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