Union Pacific's dividend compound annual growth rate has been accelerating over the last 10 years with the expected payout in 2012 increasing at a compound rate of 24.35% over 2011. This is lower than the 3 and 5 year dividend CAGR, but very respectable nonetheless. The following table outlines the annual dividends paid since 2002 along with the 10, 5, 3, and 1 year dividend CAGR.
Since 2002, annual dividends increased 8 times and remained unchanged in 2005 and 2006. Despite not growing dividend payouts for two years, UNP has delivered an impressive dividend growth rate of 19.04% over the last decade. The current payout ratio is a comfortable 28% based on the 2012 analyst EPS mean estimate of $8.59.
Union Pacific has also exhibited strong earnings growth over the last 5 years at a compound annual rate of 19.95%. Analyst estimates for growth over the next 5 years is 16.30%, which is a decline of roughly 18.30%. Taking the 10 year dividend CAGR as a basis, the following table estimates the yield on initial investment and EPS through the next 20 years. An 18.30% reduction is made in EPS estimates for years 1-5, with each 5 years after year 5 receiving an additional 18.30% reduction. Dividend growth rates are reduced at a similar rate with a 5 year lag behind EPS decline.
20 Year Growth Analysis at 10 Year Dividend CAGR
20 Year Growth Analysis at 5 Year Dividend CAGR
With a strong dividend CAGR over the last decade, a most recent quarter over quarter dividend increase of 26%, and strong earnings growth, Union Pacific passes the dividend test and will continue to be a core position is my dividend growth portfolio.