Union Pacific: A Blue Chip Dividend Stock To Board Now

Core Viewpoint - The U.S. economy is projected to reach a nominal GDP of $28.8 trillion in 2024, accounting for 26.3% of global GDP, significantly ahead of China by $10 trillion, indicating strong economic dominance and diversification [1][2] Company Performance - Union Pacific (UNP) reported a 0.7% year-over-year increase in operating revenue, reaching over $6 billion, although it fell short of analyst expectations by $60 million [3][4] - Freight revenue grew by 1.2% to $5.6 billion, driven by core pricing gains and modest volume growth [4][5] - Diluted EPS increased by 6.6% year-over-year to $2.74, exceeding analyst consensus by $0.03, with an improved operating ratio of 60%, reflecting productivity gains and a reduced headcount [6][11] Financial Health - The adjusted debt to EBITDA ratio improved from 2.9x in Q1 2024 to 2.8x in Q2 2024, with an interest coverage ratio of 7.7, indicating strong financial stability [11] - The company is expected to continue share repurchases of approximately $1.5 billion in 2024, maintaining a long-term capital allocation strategy of $3.4 billion [7][10] Dividend Growth - UNP increased its quarterly dividend by 3.1% to $1.34, marking the first hike since Q2 2022, with a five-year compound annual growth rate of 9.1% [13][14] - The diluted EPS payout ratio is projected to be in the high-40% range for 2024, below the preferred 60% payout ratio by rating agencies [15] Market Outlook - The outlook for 2024 is balanced, with coal demand under pressure but stabilization in grain markets and favorable conditions in petroleum and petrochemical sectors [8][9] - The consensus predicts a 6.6% growth in diluted EPS to $11.14 in 2024, with further growth projected in subsequent years [10] Valuation - UNP's current P/E ratio of 21 aligns with its 10-year average, and the fair value estimate is $252 per share, indicating a 7% discount to fair value at the current price of $234 [12]