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How Safe Is the Union Pacific Dividend?

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Railroad operator Union Pacific (NYSE: UNP) has been transporting goods for over 160 years. It has paid a dividend every year for the last 124 of them.

The last time it cut the dividend was 25 years ago. Will the company make it 26? Let’s take a look…

Last year, free cash flow was $5.7 billion, down from 2021’s $6.1 billion, which had been the highest in at least 10 years.

Chart: Union Pacific's Free Cash Flow

Cash flow from operations was actually higher, but thanks to a nearly $700 million increase in capital expenditures, free cash flow declined, which Safety Net does not like to see.

While the company brought in $5.7 billion in free cash flow, it shipped $3.2 billion back to shareholders in the form of dividends for a very comfortable payout ratio of 56%.

That means even if free cash flow were to jump the tracks and decline again, there is plenty of room before the dividend would eat up all of the free cash flow and the company would have to consider a cut.

In 2023, free cash flow is forecast to come in at $5.6 billion, so as long as it’s in the ballpark, dividend investors shouldn’t worry.

As I mentioned, the company has paid a dividend for more than a century and the last cut was in 1998, so its recent dividend-paying history is excellent. It has raised the dividend every year for the past 16 years.

The current $1.30 per share quarterly dividend equals a 2.6% yield. So Union Pacific isn’t a particularly high yielder. But with a 16-year streak of hiking the dividend, a low payout ratio and plenty of cash flow, Union Pacific’s dividend should not go off the rails anytime soon.

Dividend Safety Rating: B

Dividend Grade Guide

If you have a stock whose dividend safety you’d like me to analyze, leave the ticker symbol in the comments section.

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