When looking for promising candidates for your stock portfolio, it's easy to just think about the prominent names of the day, such as Facebook, Ford, or Bank of America. But there are plenty of other possibilities, many of which have been under our nose for quite some time.
Permit me to introduce you to Union Pacific (NYSE: UNP ) , for example. Here are a bunch of interesting things about the company and its stock.
The basics: The company traces its roots back well before the Civil War, to 1848 and the completion of the first 10 miles of the Galena and Chicago Union Railroad. In 1862, President Lincoln signed the Pacific Railroad Act, authorizing the Union Pacific and Central Pacific railroad companies to build a transcontinental railroad. Union Pacific's first rail was laid in Omaha in 1865.Today, Union Pacific is one of America's top railroad companies, with roughly 32,000 miles covering 23 states in the Western two-thirds of the country. As of the end of 2012, it employed 45,700 workers and sported 8,400 locomotives.
Like other railroad companies, Union Pacific has been challenged by weakness in the coal market, but less so than its Eastern rivals CSX (NYSE: CSX ) and Norfolk Southern (NYSE: NSC ) . Union Pacific has been performing well in part by raising prices and expanding other businesses, such as transporting oil.
Union Pacific and holders of Union Pacific stock do face some risks, though, such as the fact that Berkshire Hathaway's Burlington Northern Santa Fe Railway is looking into powering its trains with natural gas, which could help it compete better on price and put pressure on its competition.
Union Pacific stock is up about 54% over the past year, and it has averaged annual gains of 20.5% over the past decade and 12.6% over the past 30 years. Clearly, Union Pacific stock has been good to its shareholders.
Holders of Union Pacific stock enjoy a dividend yield recently around 1.7%, with the dividend having been raised 15% last year and averaging an annual gain of about 26% over the past five years. The payout ratio is low, too, with Union Pacific paying out only about a third of its earnings, leaving plenty of room for further growth.
A peek at some of the characteristics of Union Pacific stock via the company's financial statements offers reasons to smile, with measures such as net profit margins and return on invested capital rising steadily in recent years and free cash flow more than doubling over the past five years to $2.3 billion.
The valuation of Union Pacific stock looks un-bargain-like, with a recent P/E ratio near 19, but its forward P/E ratio is around 14.6.
Demand for railroad services isn't likely to flag anytime soon, especially as rail transport is far more cost-effective than trucking. (Trains can transport a ton of cargo more than 400 miles on a single gallon of fuel.) Union Pacific stock is worth considering if you're looking for a solid long-term performer as well as dividend income. You might want to buy some now -- or add it your watch list, and hope that the price drops some, offering an entry point with greater margin of safety.
Give CSX some consideration, too. With 21,000 miles of track serving two-thirds of the U.S. population, CSX maintains a valuable proprietary asset. Still, this railroad will face difficult obstacles in the years ahead because of a domestic surplus of natural gas and coal's declining popularity. To help investors better understand how CSX can deal with these challenges, The Motley Fool has released a brand-new premium research report written by Isaac Pino, industrials bureau chief and transportation expert. Isaac provides an in-depth look at CSX's competitive advantages, risk areas, and prospects for the future. Simply click here now to access your copy of this invaluable investor's resource.
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