We recently compiled a list of the 15 Stocks to Invest in with Steady Dividends. In this article, we are going to take a look at where Union Pacific Corporation (NYSE:UNP) stands against the other dividend stocks.
Dividend stocks, while popular among investors, have been underperforming for a while. Dan Lefkovitz, a strategist at Morningstar Indexes, attributed this lag to a straightforward reason: their limited exposure to the technology sector. Although technology wasn’t the top-performing sector in 2024, it came close and now represents a significant portion of the market.
However, this doesn’t suggest that dividend stocks are fundamentally weak or that they won’t rebound in the future. Alex Bryan, Morningstar’s director of product management for equity indexes, believes that changing market dynamics could benefit dividend investors. Here are some comments from the analyst:
“From a valuation standpoint, dividends look more attractive than they did a year ago, and that’s partially because of the relative underperformance that they’ve had. Bonds are certainly more competitive relative to dividends. But if you look at dividend-paying stocks relative to the rest of the equity markets, I think they’re becoming more attractive relative to other stocks.”
Other analysts also suggested that dividend-paying stocks might stage a comeback in 2025 due to growing investor demand for cash returns. The broader market’s dividend yield fell below 1.19% in 2024, marking a 20-year low, compared to its long-term average of 4.3%. With interest rates recovering on risk-free investments like Treasurys, companies are facing increased competition for yield. As a result, many are raising dividends or initiating them for the first time. Notably, some major tech giants began paying dividends in 2024, signaling to the market their shift toward value positioning within a high-growth sector.
Also read: 10 Best High-Yield Dividend Stocks To Invest In
In 2024, companies in the broader market that paid dividends returned around 35% of their net income and 45% of their free cash flow to shareholders, as reported by Bloomberg. The average dividend yield for these companies was approximately 2.3%, while the market capitalization-weighted yield stood at about 1.5%.
Wolfe Research’s Chief Investment Strategist, Chris Senyek, offers a unique perspective on investing in dividend stocks. While investors typically focus on companies with growing dividends and high yields, Senyek suggested exploring other opportunities. He highlighted companies initiating dividends for the first time and those that have recently reduced their payouts. Initiating a dividend indicates management’s confidence in maintaining steady earnings and cash flow, while also attracting a new group of investors.
Senyek also noted that shares of companies that cut dividends tend to underperform leading up to the cut, perform in line with the market shortly after, and begin to outperform about six months later. The key is to identify companies that may be at risk of cutting dividends and to reconsider those that reduced payouts a few months earlier. To forecast potential cuts, Senyek examines companies with high dividend yields, substantial debt, and elevated payout ratios. For potential new dividend payers, Senyek seeks out companies with robust free cash flow yields that are actively repurchasing shares and maintaining manageable debt levels. In view of this, we will take a look at stocks with steady dividends.
Our Methodology:
For this article, we scanned Insider Monkey’s database of 900 hedge funds as of Q3 2024 and picked dividend stocks with over 10 consecutive years of dividend growth. From this list, we further refined our selection criteria by identifying stocks with a projected upside potential of over 10% based on analyst price targets, as of January 20. The stocks are ranked according to their upside potential. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
An intermodal container train winding through a rural landscape.
Union Pacific Corporation (NYSE:UNP)
Upside Potential as of January 20: 10.88%
Union Pacific Corporation (NYSE:UNP) is an American transport company, headquartered in Nebraska. The company operates railroads, connecting 23 states. It is focusing on increasing mainline and terminal capacities by building new sidings and extending existing ones. These efforts are especially critical in growth regions like the Pacific Northwest, where the company is improving its handling of soda ash and grain exports, and the Southwest, where it is enhancing intermodal services. Moreover, the company is investing in advanced technologies like GPS tracking for containers and rail pulse systems to improve service reliability and provide customers with real-time tracking and better communication. The stock has surged by nearly 3% since the start of 2025.
In the third quarter of 2024, Union Pacific Corporation (NYSE:UNP) reported $6.01 billion in revenue, which saw a modest 1% rise compared to the same period last year. Freight revenue, excluding fuel surcharges, saw a 5% increase, driven by a 6% growth in revenue carloads. The company’s operating income also experienced an 11% boost, reaching $2.4 billion.
Union Pacific Corporation (NYSE:UNP)’s cash position also remained strong for FY24. In the first nine months of the year, the company posted an operating cash flow of $6.7 billion, which showed a growth from $5.9 billion in the same quarter last year. Free cash flow saw a notable increase, climbing to $1.8 billion from $955 million the previous year. The company has been a generous dividend payer, providing regular payouts to shareholders for the past 125 years. Moreover, it also maintains an 18-year track record of consistently growing its payouts, which makes UNP one of the best stocks with steady dividends. Its quarterly dividend comes in at $1.34 per share for a dividend yield of 2.27%, as of January 20.
Of the 900 hedge funds tracked by Insider Monkey at the end of Q3 2024, 78 funds held stakes in Union Pacific Corporation (NYSE:UNP), compared with 82 in the previous quarter. These stakes have a total value of over $4.48 billion. With over 6.2 million shares, Fisher Asset Management was the company’s leading stakeholder in Q3.
Overall UNP ranks 12th on our list of the best dividend stocks with high yields. While we acknowledge the potential for UNP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than UNP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.