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Thursday, September 29, 2016

Another Round Out Buy

26 September 2016: Bought 44 shares of UNP at $94.40 per share.

Founded in 1862, Omaha, Nebraska-based Union Pacific Corporation (NYSE:UNP) operates through its principal operating company, Union Pacific Railroad Company. The company operates the largest public railroad in North America, with 32,000 miles of track linking 23 states in the western two-thirds of the United States. UNP hauls coal, industrial products, intermodal containers, agricultural goods, chemicals, and automotive products. UNP owns a quarter of Mexican railroad Ferromex.

UNP is a Dividend Challenger with a 9-year streak of annual dividend increases. The company pays quarterly dividends of 55¢ per share in the months of March, June, September, and December. At my buy price of $94.40, the stock yields 2.33%.

I already own 56 shares of UNP, so with this buy, I'm rounding out my position to 100 shares. Owning 100 shares will allow me to execute covered calls on my UNP position and boost dividend income with option income.

After this trade, the average cost basis of my UNP shares is $91.36, while the yield on cost (YoC) averages 2.41%. I'm adding $96.80 to DivGro's projected annual dividend income, which now totals $11,183.

Below is a 3-year chart depicting my buy prices:

My fair value estimate of UNP is $93.36.

In comparison, Morningstar's fair value estimate is $98.00, whereas S&P Capital IQ calculates a fair value of $95.00. According to Tipranks, based on 9 ranked analysts offering 12-month price targets for UNP, the average price target is $99.63. Finbox.io has a fair value estimate of $85.07.

I recently started using the analysis tools available at Simply Wall St. In future stock analyses, I'll use some of the graphics and charts provided, but here I'll just quote their future cash flow value, estimated at $84.35.

If we ignore the minimum and maximum of these fair value estimates and average the rest, the aggregate fair value estimate is $92.86. This means I paid a slight premium of 1.7%. While I prefer to buy shares at a discount of at least 10% to fair value, in this case, I'm willing to pay the premium so I can initiate a covered call on UNP.

Following is a table containing updated ratings of UNP from various sources:
 DARS Rating: 
 Neutral (2.5 to 3.4) 
 Rating for Stocks: 
 STARS and Quality Ranking: 
   Quality Ranking:  A+ 
 Quant Rating: 
 Analyst Consensus: 
(9 Analysts) 
 Rating and Rank: 
  Financial Strength:     Safety: 
 Rank and Style Scores: 
  3-Hold    †VGM: 
†VGM Style:  Value   Growth   Momentum  and  combined VGM  score

I still like UNP as a dividend growth stock, although there are some concerns about future earnings and continued weakness in key end markets. Also, the company has not raised its dividend since the beginning of 2015. Failure to pay a higher dividend in November would constitute a dividend freeze.

I'm keeping my fingers crossed for a raise!

Thanks for reading! Take care everybody!


  1. Good Buy Ferdi. I don't own any UNP right now, but when I did, I made good money selling covered calls. Right now, I'm selling puts against UNP,until such time as I can get 100 shares on sale ;-).

    1. Yes -- getting into this one for covered calls was more important than paying a bit of a premium. I think I can make up the difference with the first option premium.

      Before I considered trading options, my strategy was to buy shares in chunks of about $2,500 each. The problem with this approach is that I didn't buy stock in multiples of 100 shares. Hence the need to round out my share counts now!


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