Dividend Increase | Union Pacific

Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Union Pacific for another dividend increase!

There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On July 25th the Board of Directors at Union Pacific (UNP) approved an increase to the quarterly dividend payment.  The dividend was increased from $0.88 up to $0.97 per share.  That's a solid 10.2% increase.  Union Pacific is a Dividend Contender with 13 consecutive years of dividend increases.  Shares currently yield 2.17% based on the new annualized payout.

The newly increased dividend will be payable on September 30th to shareholders of recorded as of August 30th.

Since I own 20.215 shares of Union Pacific in my Rollover IRA, this raise increased my forward 12-month dividends by $7.28.  This is the 1st dividend increase I've received from Union Pacific since initiating a position in February.  

A full screen version of this chart can be found here.

While I'd be happy with a 10% increase by itself, even more impressive is that this was Union Pacific's second increase during 2019.  In February Union Pacific previously announced a 10% increase.  That put the year over year increase at a whopping 21.3%!  

As you can see in the above chart Union Pacific's dividend history isn't the cleanest with a cut in the late 1990's and pauses in growth around the "Great Recession" and more recently in 2015/16.  However, dividend growth over the longer term is still solid.  Of the 16 rolling 10-year periods annualized dividend growth has ranged from -3.5% to 31.1% with a median of 22.2%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1994 can be found in the following chart.  

A full screen version of this chart can be found here.

*2019's dividend growth assumes the new quarterly payout of $0.97 per share is maintained for the rest of 2019.

Based on dividend yield theory, Union Pacific's current yield of 2.17% is lower than the 5 year moving average of 2.21%.  This suggests that Union Pacific is trading in the range of fair value.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Back in March I completed a dividend stock analysis on Union Pacific pegging the fair value somewhere in the $160-180 range.  You can check out the analysis over at Seeking Alpha.

Wrap Up

This raise increased my forward dividends by $7.28 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.27% this raise is like I invested an extra $320 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

My FI Portfolio's forward-12 month dividends remain $7,160.75.  Including my FolioFirst portfolio's forward dividends of $99.94 brings my total taxable accounts dividends to $7,260.69.  My Roth IRA's forward 12-month dividends remain at $543.97.  My Rollover IRA's forward dividends increased to $1,992.89.  Across all accounts I can expect to receive $9,797.55 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Union Pacific's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Union Pacific?  Were you happy with another year of double dividend increases?

Please share your thoughts below.