Friday, November 6, 2015

Weekly Purchase 9 - UNP



For this week's sharebuilder purchase, I added to my existing position in UNP.

The market has pulled back and it is difficult to find good bargains. Even so, I had my eyes on a few companies based on my October screen, my portfolio and my overall watchlist.

Out of the several options, I ended choosing UNP. The railroad business is currently being hammered by the market. Knowing that it is a cyclical business, this is the time to invest.

I have an almost "full" position of UNP in my portfolio, so I probably won't add to it again for a while or if it dips significantly further.

Details of Purchase

On Tuesday, I bought 11.2381 shares of UNP.

Action
Security
Price
Quantity
Amount
Buy
UNP
$88.99
11.2381
1000

This purchase increases my forward annual dividends by $24.72.



About Union Pacific Corp

You can read more about UNP here:


I've analyzed them a few months ago. You can read my analysis here:


Criteria table

UNP 11/2015
Area
Criteria
CheckList
Comment
Quality Company
Dividend Growth
>5 years
Yes
7 years
ROE/EPS/Op Margin
Stable
Yes
Stable
Long term Avg Growth
Stable
Yes
Stable
FCF over Dividends
Yes
Yes
Stable
M* Moat
Wide Moat
Yes
M* Wide
M* & S&P
Credit Rating
> BBB+
Yes
S&P A-
Cash to Debt & Interest Coverage, Debt to Equity
Cash Debt >1 or Interest Coverage > 5
Yes
Cash to Debt 0.08
Interest Coverage 64.66
Debt to Equity 15.6
M* & S&P Stars
> 3 Stars for both
Yes
M* 4 Stars
S&P CapIQ 4 Stars A+ Quality
Payout Ratio
<60%
Yes
37.13%
Dividend Growth
& Yield
Dividend Yield
>3%
No
2.47%
Dividend Growth
>5%
Yes
29.40%
Chowder
>12%
Yes
31.87%
Valuation
Yield/Avg Yield
>1.1
Yes
1.2
Dividend Yield Theory Mid Point
Below Mid Point
Yes
Mid Point 108.91
Low Point 73
DRRM
~10%
Yes
Assuming 7% growth; projected return=11.67%
M* Estimate
<M* est
Yes
M* 110
S&P Estimate
< S&P cap IQ est
Yes
S&P Cap IQ 112

Data from Gurufocus, Yahoo Finance, Google Finance, M*, S&P Capital

UNP is a cyclical business. There are years where the dividend will not move. The growth metrics are very nice - so it's a matter of sitting (and investing) during the down years and reaping the benefits in the good years.

Fair Price Calculation

I use the dividend yield theory, PE analysis and DDRM for fair price calculation. Based on these methods, I estimate the fair price to be in around 100. Therefore, I believe UNP is trading at or slightly below fair value.

That's it for now! What do you think of UNP?
D4s


4 comments:

  1. I wholeheartedly support buying railroads! Cant go wrong with them....and UNP is definitely one of the best run railroads out there. Congrats on the purchase

    R2R

    ReplyDelete
    Replies
    1. R2R,
      It's definitely a tough time for the railroads. For the long term investors like us, these dips are buying opportunities. Thanks for your encouragement to buy this beaten up stock.
      D4s

      Delete
  2. I really like UNP here and they are the dominant player in the US. Love the local monopoly structure of the railroads and it only helps that they are also the most efficient way to move large quantities of goods across a long distance. I've noticed the drop as well and UNP is creeping up my buy list. Unfortunately there's only so much capital to go around because I have about 10 companies I'd like to purchase right now or just slightly lower than current prices.

    ReplyDelete
    Replies
    1. PIP,
      Thanks for your input! I really like UNP and NSC - and yes - I have a list of companies I also want to build up. Lets see how the market reacts with the interest rate news. Another Thanksgiving sale?
      D4s

      Delete