Recent Buy

buyI’m incredibly fortunate to stay busy on the stock purchasing front, with May being a blockbuster month in terms of fresh capital deployment.

Most of my attention this month has been focused on REITs, adding to my positions in W.P. Carey Inc. (WPC) very early in the month and then just a day later Omega Healthcare Investors Inc. (OHI). I think both stocks are trading at reasonable valuations here with extremely appealing combinations of yield and growth.

Interest rates, corrections, and currencies! Oh my! I keep hearing about all of it. Yet I continue to regularly invest and turn cash into its far more interesting and superior cousin, cash flow. If you let the noise distract you from focusing on what you can control, you’ve already lost the battle. Don’t let Mr. Market bully you around.

But REITs aren’t the only game in town. And I had a few other high-quality stocks on my watch list for May. I decided to deploy what cash I had left for the rest of the month into a stock I’ve long wanted to get my hands on.

I purchased 10 shares of Union Pacific Corporation (UNP) on 5/6/15 for $106.43 per share and an additional 5 shares on 5/13/15 for $102.29 per share.

Overview

Union Pacific Corporation (UNP) is the largest public US railroad, operating 32,000 miles of track that serves the western two-thirds of the country which includes some of the fastest-growing US population centers across 23 states.

UNP connects with Canada’s rail system and they’re the only railroad that serving all six major Mexico gateways.

Founded in 1862, they now serve roughly 10,000 customers.

2014 freight revenue breaks down via the following six commodity groups: Industrial Products (20%), Intermodal (20%), Coal (18%), Agricultural Products (17%), Chemicals (16%), and Automotive (9%).

2014 carload composition was 61% domestic and 39% international.

Fundamentals

Union Pacific is a massive company, with a market cap north of $89 billion. They operate one of the largest freight railway networks on the entire planet.

But where railroads might be thought of as a boring or staid business, UNP’s fundamentals are nothing short of impressive.

I’m going to take a look at growth over the last decade first, followed up by expected growth over the foreseeable future. Then I’ll highlight some of the other key fundamentals, including the dividend metrics.

Looking at the top line, revenue has increased from $13.578 billion in fiscal year 2005 to $23.988 billion in FY 2014. That’s a compound annual growth rate of 6.53%.

Meanwhile, earnings per share grew from $0.96 to $5.75 over this time frame, which is a CAGR of 22%. Not so staid after all, huh? The large difference in terms of bottom-line growth was fueled in part by major improvements in margins and a buyback policy that saw the company reduce its outstanding shares by almost 16%.

S&P Capital IQ is calling for 12% compound annual growth for EPS over the next three years. That would be a significant drop from the historical numbers, though still pretty stellar.

Now, a company’s dividend tells me a lot. Are they so profitable that they have all this excess profit that flows to shareholders? Are they growing that dividend? Is the dividend sustainable?

Well, UNP doesn’t disappoint here.

First, they’ve increased their dividend for the past nine consecutive years. The company maintained a static dividend for a number of years around the turn of the century, but has been growing it since.

Nine years isn’t bad. But where the dividend really catches my attention is the rate at which it’s grown – the five-year dividend growth is an astounding 27.3%.

That growth rate is pretty incredible, but you can see it’s largely been supported by huge growth in underlying profitability. So the payout ratio here, at 37.5%, is still quite reasonable. As such, the dividend appears to be not only very sustainable, but also in a great position to continue growing at an attractive rate.

And you have to like the yield right now, which is 2.15%.

UNP, like most railroads, does operate with some leverage due to the capital-intensive nature of the business. However, they have one of the best balance sheets in the entire industry. The long-term debt/equity ratio is 0.52 and the interest coverage ratio is just over 15. So that means the company’s earnings before interest and taxes cover interest expenses about 15 times over. Obviously, they have no issues here.

Profitability for UNP is also outstanding, and really speaks to the efficiency of the railroad. They’ve averaged net margin of 18.73% and return on equity of 19% over the last five years – some of the best numbers in the industry.

For perspective, both of these ratios have more than doubled over the last decade. On the flip side, the low-hanging fruit has probably already been picked, which means growth in the future may be much more timid.

Qualitative Aspects

The railroad business is one of my favorite business models, which is why I’m now a shareholder in two major US railroads – UNP and Norfolk Southern Corp. (NSC).

The competitive advantages are about as strong as you can possibly get for these companies, with economic moats that are wide and built right in.

First and foremost, the very business model and how railroads came to be is the biggest advantage of all. When’s the last time you saw a major railroad erected? You’re just not going to really see that because the rights of way are about impossible to get now with the US becoming increasingly populated and dense. All the major ports are already covered and all the best routes are already taken. It wouldn’t only be nigh impossible for a new competitor to spring up, but it’d be a bad idea. I think you could give someone $90 billion (the approximate market cap of UNP) and they still wouldn’t be able to recreate anything close to UNP. The barriers to entry are just enormous.

There are also major economies of scale here. You have rail that extends out thousands of miles, which allows UNP to move plenty of goods a long distance for very little money. And there’s relatively little competition, since there are only seven Class I railroads in North America. As such, the choices are somewhat limited in terms of moving goods by rail.

But it isn’t just lack of choice that affords UNP competitive advantages. They’re a low-cost mover of goods since it’s generally cheaper to move goods by rail than it is via truck, largely due to fuel efficiency. For instance, UNP has noted before that railroads are, on average, four times more fuel efficient than trucks. Furthermore, one train can move a ton of freight an average of 480 miles on just one gallon of fuel.

Goods have to be moved. That’s been true since the mid-1800s (when railroads were first built). And it’s true today. I see no reason why that won’t continue to be true another 100 years from now. In fact, with the increasing population across the world, it’s more likely that UNP and other railroads will be moving more goods across their tracks in the future than they are today. There will be fluctuations in volume – UNP noted a drop in volume for Q1 2015 when they released their earnings report – but, by and large, the long-term picture seems bright.

Moreover, UNP remains diversified across their commodity groups. Although the trends in the energy industry involve moving away from coal, the company remains strongly diversified across their lines and remain capable of increasing volume in other segments. You’ll notice that volume for coal in terms of revenue carloads dropped 7% YOY in the recent earnings report, but gains elsewhere means overall volume dropped just 2%. And, like I just mentioned, the long-term picture means that overall volume will likely only increase over the long term.

Risks

There are numerous risks with UNP and other railroads.

There are extensive costs to maintaining a railroad. Unlike a lot of other methods of transportation, railroads must maintain their own networks. This is expensive – UNP has invested more than $31 billion in its network and operations from 2005 to 2014. So the infrastructure there remains extremely valuable and probably impossible to replicate, but also expensive to maintain. In addition, there are significant input costs varying from labor to fuel.

Regulation remains omnipresent. Any negative changes here could have material impacts on UNP’s costs to operate and/or ability to maintain profitability in a competitive manner.

As a railroad, UNP is exposed to the broader economy and all the ups and downs that comes with. Any major drop in activity across the economy as it relates to demand for goods could reduce demand for their services. However, they performed quite well during the recent Great Recession.

There are also black swan risks, including derailments and spills.

Valuation

UNP trades hands for a P/E ratio of 17.43. That’s attractive both in absolute terms and relative terms. Relative to the market’s P/E ratio of 20.73, you can see a lot to like here. In addition, this is in line with UNP’s own five-year average P/E ratio. So you’re getting a stock in line with recent historical norms against a market that’s quite a bit higher. As always, I think one should look at stocks on an individual basis instead of trying to judge the entire market at any given time.

I valued shares using a dividend discount model analysis with a 10% discount rate and an 8% long-term dividend growth rate. That growth rate seems fair considering it’s less than half that of UNP’s own long-term growth rates for EPS and the dividend. I’m factoring in the low payout ratio, growth forecast moving forward, and the extremely strong business model. The DDM analysis gives me a fair value of $118.80.

Conclusion

This is just one of my favorite business models. And you can see Warren Buffett shares that affinity for railroads, buying up the whole of BNSF Railway in 2009 – BNSF is now the most important non-insurance subsidiary under the umbrella of Berkshire Hathaway Inc. (BRK.B). I actually plan over time to make UNP a major position in my portfolio. In addition, I’d like to own another one or two railroads as well. Just like when I used to play Monopoly as a child, I’m inclined to “own them all”.

I think this is a really appealing investment here. But UNP has been on a tear over the last five years, both in terms of its stock price and operational performance. And I see limited room in terms of efficiency improvement from here. However, my desired rate of return of 10% includes a sizable margin of safety even if the company’s growth slows down considerably. As such, I think this stock makes a lot of sense here as long as you have your eye on the long term. The odds of goods still moving across rail in 10 years seem quite high to me. And with the way population trends are tilting, I think the odds are even better that more goods will be moving across rail over time. It’s an incredibly old business model that has stood the test of time. I see that as very likely continuing for many years.

I will quickly note that this transaction was split in two. I purchased the first tranche in my new TradeKing account where the $4.95 commission allowed me to pick up 10 shares at a reasonable cost. However, the stock took a dip recently and I saw that as an opportunity to use up a free trade in my Scottrade account and average down on another five shares.

The first purchase of shares was when UNP was down ~10% YTD. I pulled the trigger a second time when the stock was down about 14% YTD (the S&P 500 is up 3.1% YTD). Keep in mind that this is a $90 billion company, so a 14% swing is a major change in its valuation. I saw that pullback as a chance to initiate a position in one of the best railroads in North America. I look forward to future pullbacks, if we get them. Not only does that mean I get to acquire shares cheaper, but UNP’s own buyback program – as of January 1, 2014, they’re authorized to repurchase up to 120 million shares by December 31, 2017 – becomes more effective.

These purchases add $33.00 to my annual dividend income, based on the current $0.55 quarterly dividend.

I’m going to include current valuation opinions from professional analysis services, as I use these to concentrate my reasonable fair value estimate:

Morningstar rates UNP as a 4/5 star value, with a fair value estimate of $119.00.

S&P Capital IQ rates UNP as a 4/5 star “buy”, with a fair value calculation of $117.90.

I’ll update my Freedom Fund in early June to reflect these recent purchases.

Full Disclosure: Long WPC, OHI, UNP, and NSC.

What’s your opinion on UNP? Think this makes sense as a long-term investment? Like the railroads? 

Thanks for reading.

Photo Credit: Stuart Miles/FreeDigitalPhotos.net

Note: Affiliate links included.

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87 Comments

  1. I just about a position around $103 and will double-down if it falls into the 90s. We own the same two railroads, which means our employees are moving freight all the way across the continent! I live very near NSC tracks and never mind waiting for my own company to clear an intersection. I wouldn’t buy railroad stock just because I happen to love trains, but it doesn’t hurt.

  2. Excellent purchase. I’ve been thinking about picking up a railroad recently and you make a compelling case here for UNP. I just want to finish up some homework on the current valuations of CSX and NSC, but I think I’m going to pull the trigger on one of them within the next few weeks. Maybe I’ll be a fellow shareholder soon.

  3. Nice purchase, Jason. Ive been eyeing the railroads and they have corrected quite a bit…and would be a great time to add to the position/or initiate a new one. UNP will probably be my second railroad (just a matter of when)…for now I just own one – Canadian National.

    Best wishes
    R2R

  4. Nice buy! Their stock has been a little down lately. I see they have a fee-free stock purchase plan through ComputerShare. I’m definitely going to look into UNP a little more. I guess if Warren Buffet likes railroad stocks than I can too.

  5. I have Berkshire B shares as my second biggest holding so I have some railroad exposure but UNP does have a lot going for it.

    I’ll be purchasing something this week as I have my dividends from Apple burning a hole in my brokerage account.

    I was thinking of POT (potash corp) or UNP or possibly another REIT.

  6. Hi Jason,

    glad you’re doing well and keep on improving your dividend income stream 🙂 One question for you: If you’d be just about to start your life as a dividend investor – while currently not owning any stocks – with which stocks would you start? Which stocks would you buy now if you had $ 10k lying around?

    Cheers!

  7. Hey DM this looks to be a good long term buy that will reward you and fellow share holders with a good dividend. I have looked at UNP and may add some share to my growing dividend portfolio. A little late but congrats on getting married. keep up the good work

  8. Thanks for sharing Jason. We have a buy in for Union Pacific also, but it didn’t hit our limit order yet. Did pick up some Johnson & Johnson shares however. I have a two fold approach when equities are expensive, as I think they are today. 1. Buy less, and 2. Buy only the BEST.

    Union Pacific is the best of the publicly traded railroads in America
    -Bryan

  9. Hi Jason,

    Gratulation to your next part of your freedom fund. I tought your next buy would be HCP. Dividend Aristocrat and bigger in market capitalisation. What are your ideas about HCP? Dont you think that short term issues shouldnt be that problem for a long term investor?

    Best wishes

  10. That was a nice and quick average down, who doesnt love free right?

    I just recently added NSC on my watchlist during the recent dip then added UNP on my watchlist as well but I never get the chance to look deeper, and since you just bought this stock my interest hightens. Will research further, thanks for sharing your recent buy DM!

    Take care

  11. Jason,

    Hands down my favorite railroad and probably #1 or 2 on my watch list right now. If I had the money for my next big buy (almost there) right now I would have to talk myself out of UNP. Congrats on the excellent move.

    -Gremlin

  12. Dividend Mantra,

    Nice buys on this company. The railways are great companies to own new companies would face enormous barriers to entry. Railways are going to become more important then they are now as the population increases which would mean more goods needed. The railways offer the cheaper way to get their from cost and environment advantages.

    I recently because of first time owner in a railway if my purchase of Canadian National Railway on the TSX.

  13. Jim,

    Glad to be a fellow shareholder there with you in a couple of the finest businesses around. I’ve been happy with my NSC position, but I kind of wish I would have loaded up on some other railroads back then. Can’t win them all. 🙂

    I do hope we see it drop into the $90s… or even lower. More shares for the buck, for us and UNP!

    Best regards.

  14. TBD,

    Railroads almost across the board have dropped quite a bit lately, which seems to opening up an opportunity. NSC seems like a great value right now as well. Like UNP, they’ve really experienced a lot of efficiency gains that probably won’t continue on, but the long-term picture seems bright. I already have enough NSC, or else I might be on that right now.

    Cheers!

  15. R2R,

    Canadian National is a great railroad. Right up there with UNP in terms of its financial ratios and profitability. CNI will probably be my third railroad. Hope to be a fellow shareholder sooner rather than later. 🙂

    Best regards.

  16. adam,

    I absolutely love to see a high-quality stock like this drop 14%. I hope it languishes here or drops even further, as that would be a pretty solid opportunity to start loading up. Buffett and BNSF is a strong competitor here against UNP, but I think they’ll both do quite well over the long haul.

    All aboard! 🙂

    Take care.

  17. sfmitch,

    You’ve got some great exposure to rail. BNSF is a very worthy competitor to UNP.

    My Apple dividends aren’t burning a hole, unfortunately. You have a good problem over there! 🙂

    Best regards.

  18. Daniel,

    Hmm, good question. I’m always looking for value and quality, regardless of where my portfolio is. I’d probably be buying similar stocks to what you’ve seen me buy over the last six months or so. I’ve always purchased stocks in a similar manner, in terms of transaction size, sector rotation, and keeping overall portfolio construction in mind.

    But if I were starting all over again, these stocks would be pretty high on my list right now: PM, UNP (or another railroad), NOV, OHI, AAPL, JNJ, TROW, OKE, and EMR. Those picks are invested across the economy there, though underexposed to the consumer stocks simply because there’s just not a ton of value there right now.

    Cheers!

  19. michael,

    Thanks so much. Appreciate that!

    Yeah, I think UNP shareholders (including myself) should do well over the long haul here. Love the railroads. 🙂

    Thanks for dropping by!

    Best wishes.

  20. Bryan,

    A sound approach, my friend. 🙂

    I agree. UNP has some outstanding metrics. CNI is up there as well. I like NSC and CSX as well – you get better valuations there, but the operating metrics far favor UNP.

    Thanks for stopping by. And nice move there with JNJ. Probably my favorite overall stock.

    Best regards.

  21. Andy,

    Well, I just picked up some OHI. They operate in a similar space, but OHI is cheaper, offers a higher yield, and has been growing faster. I’m looking closer at OHI right now.

    Cheers!

  22. FFF,

    I always enjoy the opportunity to average down. Especially when it costs me nothing in terms of commission fees. I hope to have another opportunity to average down yet again on UNP over the short term, but I think that over the long term I’ll end up probably buying at least another 40 or 50 shares. Just never enough capital. 🙂

    Thanks for dropping by!

    Cheers.

  23. I really like UNP and the railroads in general. Huge barrier to entry and I don’t see a realistic threat to their business model. They are the quickest and cheapest transportation method for goods on land. And UNP covers about 2/3 of the lower 48. That’s a huge network of rails. The biggest issue I have is that they are very capital intensive which eats into the cash flow. But their moat helps to make up for that. Their share buyback program has been relatively effective as well which is an added boost to shareholders. Wish the starting yield was a bit higher because buybacks or dividend increases might have to slow down based on cash flow numbers running pretty tight. Of course a better economy will turn that around. Thanks for the update UNP is looking rather attractive here but I’ll be waiting for a share price just a bit lower because capital is a bit tight right now for my portfolio.

  24. Gremlin,

    It’s a really fantastic business. The fundamentals across the board are either the best in the industry or near the best. And railroads have among the most aggressive built-in competitive advantages around. A boring business model that has been making money since the mid-1800s. 🙂

    Best wishes!

  25. IP,

    Nice buy there. Canadian National is another fantastic railroad. That’s very likely the next railroad I’ll look to own. UNP seemed to offer the more compelling value, higher yield, and better dividend growth (in addition to the lack of foreign tax withholding). But CNI has a fantastic business going over there as well. Sooner or later. Just need to round up the capital. 🙂

    Cheers!

  26. Nice job taking advantage of the drop.

    We live right by rail tracks operated by CNI. I’m thinking of buying some shares just so that instead of being slightly annoyed when I hear them in the middle of the night, I think, oh yeah, they’re working right now so I’m making money while I go back to sleep!

    Red to Riches

  27. JC,

    Yeah, the capital-intensive nature of the business is definitely a drawback. But UNP has been managing its cash flow incredibly well, from what I can see. And while you’ve got some of the oil supermajors routinely running FCF negative, it looks like UNP has been positive every year over the last decade (even through the Great Recession). Pretty solid stuff. But I do think that growth will inevitably slow down. Can’t keep up a 22% pace like that forever. But the business model is just incredible. Love those railroads. I’ll probably end up owning four of them (with CNI being my next pick), just like I loved to do when playing Monopoly. 🙂

    Thanks for dropping by!

    Best regards.

  28. Wow, I like the way you think! Looks like we were both buying OHI and UNP on the same days. My only other purchase has been LXP. Also long NSC and BRK.B. The markets throwing out reits and railroads, luckily two of my faves!

  29. I was fortunate enough to be able to purchase 20 shares @ 102.21 just a few days ago. Glad to be a shareholder here. Here’s to hoping we can both average down again next month!

    Best regards!

  30. Nice purchase! Trains are one industry that I have yet to invest in. I’ve been eyeing them ever since reading Atlas Shrugged a few years ago!

  31. Nice buy! I have held NSC, and CSX for a long time, and last year added UNP. I just bought another 30 shares on Thursday. With the share price pulling back, I was hoping to see you jump in. Not super happy with the proposed regulation on a braking system for the oil cars, but I’m sure between the railroad lobbyists, and gas/oil lobbyists they will have something fair come out of it.

  32. Soggy,

    Great minds think alike. We’re definitely after the same opportunities. 🙂

    REITs and railroads it is. Gotta give what the market gives you. I think next month will probably look pretty similar if the status quo remains.

    Thanks for stopping by!

    Take care.

  33. Patrick,

    Nice move there. I can’t imagine you’ll be unhappy with that decision when looking back on it in, say, 10 or 20 years. 🙂

    Let’s do indeed hope we get a chance to average down a bit. I wouldn’t mind seeing it break below $100.

    Cheers!

  34. Scott,

    It’s a really great industry. Been making money since the mid-1800s. What more could you want? 🙂

    The competitive advantages inherent in the business model are just incredible. I can see why Buffett was eager to scoop up the entirety (that he didn’t yet own) of BNSF during the crisis.

    Best regards.

  35. I was wondering if any DGI bloggers were going to pick up any(more) UNP shares. Glad to see you did. Like you I own both NSC and UNP and look forward to a long term investment and the subsequent dividend income. Thanks for sharing.

  36. Awesome purchase Jason. Monopoly is such a simple game but it definitely works in bringing cash flow for sure. Thank you for sharing your post. I like the buy as recently I am thinking of UNP, NSC, CNI , CP for my railways. I have none and I might pull the trigger his week. We’ll see. Keep up the hustle and i always enjoy coming to your site. It’s awesome. Take care my friend.

  37. I agree that UNP is a great long-term hold. I have been looking at initiating positions in UNP through Computershare and NSC through Amstock, both of which charge no fees for purchases.

    My only concern is that the share prices of all of the railroad stocks plummeted during the late 1990s – UNP and NSC each slashed their dividends during the late 90s/early 2000s. I’m not sure exactly what happened, although the ridiculously low price of oil probably played a large role in some way.

  38. HMB,

    I’ve long wanted to expand my railroad holdings, and the recent weakness across the industry has allowed for a pretty solid opportunity here. 🙂

    We’ll see how it goes, but I can’t imagine being unhappy with this investment 10 or 20 years down the road.

    Best regards!

  39. DH,

    Well, I almost always won Monopoly. I’m hoping that good fortune works in real life as well. I’m giving it my all. 🙂

    Tough to dislike the railroads. Great business model. Super easy to understand and they’re definitely not going anywhere. It’s been a great 10-year stretch for a lot of them, so I expect that to slow at some point here. But these make great long-term investments.

    Thanks for dropping by. Keep up the great work over there!

    Best wishes.

  40. Jim,

    Absolutely. Tough to say where the stock or the business is going to be tomorrow, but I think the odds are pretty good that UNP will be a larger and more profitable company 10 years from now that’s also paying out a bigger dividend to shareholders. We’ll see.

    Yeah, I think NSC and UNP cut dividends a few years apart for different reasons. UNP had some infrastructure issues and they were busy swallowing up Southern Pacific. Separately, NSC had some issues integrating with Conrail. I imagine that most of the consolidation is probably done in the industry now that we have just a few major competitors, so it’s really just optimization now.

    Thanks for stopping by!

    Best regards.

  41. Just wondering, for transport company, what do you think about UPS and the like? It’s also impossible to replicate their logisitc know how and all the data they accumulated so far, it also have a higher yield. (FYI – Enjoying your new book! Thanks)

  42. Nice purchase, Jason. Railroads are boring but with clear moats. I haven’t looked at this industry yet. But your excellent analysis has brought my interest. Thanks a lot for sharing.

    All the best,
    Money Unbinding

  43. Hi Jason,
    I like railways and this is an interesting business you bought. In the past the increase of the shares were very strong and they came a little bit down. But the yield of the dividend is not very strong, so I will wait for that. On the other side you bought a lot of REITs and I think this is quite a good deal. OHI and WPC are really good buys. I looked at REITs as well the last month and I think I will buy in June DUNDF. I looked what they are invested in and I know nearly all the houses. This REIT is investing in Germany and one building is next to my favourite beergarden in Munich :). I think it is wonderful to sit in the beergarden and look to a building which earns money for me…

    I looked at BBL as well and they decided to form the new company. This was quite fast now. I´m wondering that the shares are still remaining low and probably I will add some additional shares on my existing ones. My target is to own at the end 250 shares of this company.

    I read your last post writing now for one year. This is a real positive article and it shows that even if you are not FI you can have the power to change your life for a better one. This is an article for people which are doing a job they dont like. I think to make the experience that you get step by step more to FI will bring you to think more about yourself, your targets in life and what is possible to do. Very important issue. So you reached a huge step for being more happy in life. Congratulations on that.

  44. Jason,

    With this purchase, I’d say now more than ever that you are on track to financial freedom. While most people subscribe to the traditional “retire at 65” plan, you’re on the express path with dividend growth investing, ensuring that you will be way ahead of schedule. Many people will disagree with your goals or methods to obtaining them, worrying about disasters such as a crash, but never let those people send you off the rails. When it comes to the Dividend Mantra community, we are all aboard.

    May this blog continue to be a great platform for learning how to achieve financial freedom!

    Sincerely,
    ARB–Angry Retail Banker

  45. I would really love to buy some BNSF, but alas that door has been closed to everyone. BNSF is all I see constantly through this area.

    Any thoughts on potential thread from automated semis?

    Thanks,
    WE

  46. Paul,

    Thanks for picking up a copy! Really appreciate that. 🙂

    As for UPS, they were on my watch list a couple months back. I like the company, but I just find myself not particularly impressed by the fundamentals of the company. I really want to like it more, but it just underwhelms me every time I start to look at what they’re doing. They post really erratic results, growth has seemingly been hard to come by over the last decade, and the margins in the business are fairly low. But I think maybe my biggest issue of all is that I just don’t think the stock is a particularly good deal right now. The business model is great, and I find it unlikely that anyone would be able to replicate what they do. But the stock just doesn’t give me the type of warm-and-fuzzy feeling I look for.

    Cheers!

  47. hola, un placer leerte donde te sigo desde hace mucho, mucho tiempo y donde aprendo cada dia mas, me gustaría que me dijeras que te parece mejor en estos momentos, HCP o OHI, creo que son parecidas pero no se por cual decantarme.

    Ah, he empezado mi camino como tu y la creación de mi espacio en http://lacasadeldividendo.blogspot.com.es para alcanzar la independencia financiera y no desviarme del camino.

    Saludos campeón.

  48. MU,

    The more boring a business, the better. Put me to sleep with the business model. I love it. 🙂

    Hope you found some value in the post. Thanks for stopping by!

    Take care.

  49. olli0816,

    Yeah, it’s really impossible to compare REITs and railroads. Very different business models with very different risks. But I like the REITs I’ve been picking up and the railroads here. They all have a place in the portfolio.

    I imagine it’d be quite nice to enjoy yourself in a building that is earning you a little cash flow. I know I sure do love consuming products and services of the companies I own a stake in. I’m actually going to be enjoying a Propel with lunch here in a minute. Thanks, Pepsi! 🙂

    Appreciate the support there. I’m really just out to inspire others. I think there’s truly all of this opportunity out there in the world. And I’m just one of those people that likes to reach out and grab some it, and I hope that my experience in that inspires others to do the same… especially if they’re not totally happy doing whatever it is they’re now doing. Life’s too short to be unhappy.

    Best regards!

  50. ARB,

    Thank you. Really appreciate the kind and ongoing support.

    I do my best to show a path and walk that path. Some people won’t agree with that. Some people will find the path problematic or too difficult. Such is life. And there are a lot of paths – many roads lead to Rome and all that. But I think this path is truly the best out there. If I didn’t, I’d be walking a different path.

    We’ll see how it goes. I’m excited to see where this train leads. And one day I’ll be able to look back and show everyone how FI was achieved in a pretty short time frame almost from scratch, all on modest income.

    Best regards!

  51. WE,

    BNSF is another great railroad, but I think UNP runs a great business as well. I think both will do well over the next few decades or so.

    Automated semis is an exciting idea, but I think that’s still a ways out. And there’s still going to be drivers in those rigs, so I’m not sure how it’ll really allow them to run constantly or anything. It’ll probably allow them to track closer together and what not, so there will be additional efficiency gains there. But I don’t think it’s really going to change much. If they were fully robotic running all day and all night while drafting each other inches apart, that would be something. However, I can’t imagine how comfortable people would feel with fully automated armies of huge semis running around. I guess we’ll see, but that’s still years down the road.

    Cheers!

  52. DFG,

    I’ve never had that fascination with trains like other children, but my affinity for railroads came about when playing Monopoly. I guess I learned that they can be little cash cows. Now I’m all grown up and I own real railroads that provide me with real cash (rather than Monopoly money). Life is good. 🙂

    Thanks for dropping by. Maybe your kids will turn that love for train rides into shares as well one day!

    Best regards.

  53. lacasa,

    Thanks for dropping by!

    I prefer OHI to HCP right now. The former is cheaper, offers a higher yield, and sports better dividend growth. The latter is a great stock as well, though their largest tenant is undergoing an investigation. I just think OHI is a better bet right now. And that’s why I bought it recently.

    Best of luck with your blog over there. I’ve really enjoyed writing and keeping in touch with so many people. The internet allows us to do amazing things!

    Cheers.

  54. I always love to read about recent buys among all the dividend bloggers because it simply opens up your mind to other investing ideas. I have never considered the railroad stocks for my long term portfolio but do know that UNP, KSU, CNI and others are in many dividend growth portfolios. I have to say that the numbers you show for UNP are pretty impressive and talk about a wide moat business. As you stated, it’d be pretty much impossible for a new railroad operator to set up shop. Nice buy in a solid ‘business model’ and now with the big two railroads in your portfolio you have got a lot of the industry covered.

  55. Nice job, I don’t own any railroads but just bought some more GOOGL today. I know it’s not a dividend stock but I would guess at some point they might decide to throw some cash investors way.

  56. On the same wavelength as you because I’ve been thinking about getting back into a railroad, specifically UNP – I owned NSC a little while back and did very well with it and this seems to be a nice pullback to get into.

  57. Buying more shares means even more dividends for you. I look forward to seeing your May dividend income report.

  58. Great pick up DM! Just last week i purchased 10 shares of UNP right below $103, a solid company with long history ahead of em! It’s always a plus to see like-minded investors parking their money in similar investment vehicles.

    Best of luck,
    Dividend Odyssey

  59. Jason,

    I too have been eying Rail, namely UNP and NSC. One thing I do before initiating is closely examine the Risk of a Kodak-like extinction that an industry may have, and I don’t see much possibility for that in Rail. However, most people couldn’t have foreseen the fall of Kodak either… Have you come across any other discussion of Extinction-risk?

    Elon Musk’s proposed Hyperloop idea is something that could eventually replace rail, but I think it is still a thing of science fiction at the current time

    Guy

  60. DH,

    Indeed. This covers both sides of the US, though I’d still like CNI for their unique T-shaped network with coverage up into Canada. CSX would probably be my fourth pick, but I’ve already got similar coverage with NSC.

    Tough to dislike the railroads. Great business model that should continue to make lots of money for a long time to come. 🙂

    Thanks for dropping by!

    Cheers.

  61. dzogen,

    Google is an interesting business model there with search and advertising. I don’t follow them very closely, but I do hope they decide at some point to reward shareholders with dividends. I guess we’ll see. 🙂

    Take care.

  62. MMM,

    I’ve also done well with NSC. They’ve served me well with dividend growth and strong operational performance. Hoping for the same here with UNP over the next few years and beyond. 🙂

    Guess we’ll see if we end up being fellow shareholders!

    Cheers.

  63. You’re welcome!

    I’m not sure if you caught the barrage of train-related puns in my comment, though.

  64. DM,

    As always, great purchase here. The railroad industry as a whole is attractive right now after the recent purchase. Way to expand your holdings to include another one of the major players in the industry. I recently bought NSC for many of the same reasons and gave plenty of thought to UNP during the process. You highlighted my favorite aspect of the industries, the fortress high barriers of entry that have been in the making since the first train track was created in the 1800s.

    Keep up the great work and keep on purchasing these great companies. Would you plan on investing more in UNP if the price continues to fall, or are you content with your current position?

    Bert

  65. DO,

    Nice buy there. Great company at a really solid long-term value. 🙂

    Glad to be a fellow shareholder here. Hoping we see even more weakness in this sector. Would really love to load up on the railroads. Just need more capital!

    Best regards.

  66. Guy,

    Yeah, I don’t really foresee any extinction risk in railroad. I see some industries where there’s some risk there. Traditional utilities – especially those relying heavily on coal – come to mind pretty quickly. But I can’t think of anything that explicitly concerns me as it relates to railroads. There’s always the chance of change in almost any industry out there, but nothing that currently exists could likely replace the capacity to move goods in terms of what railroads offer. And certainly not at the same cost level.

    Cheers!

  67. ARB,

    Oh, I caught them. It’s just that I couldn’t respond in kind because you used up all the puns that I could possibly think of. 🙂

    Cheers!

  68. Bert,

    The barriers to entry here are incredible. It’s a textbook example. Just huge competitive advantages.

    I’m definitely interested in adding to my position. I’ll probably end up buying another 50 shares before I’m all done. If the price stays at this level or drops, I may be adding quite aggressively over the coming months. WPC, OHI, and AAPL all remain appealing as well. It’s very likely my buying activity over the next month or two will be pretty repetitive.

    Keep up the great work. Glad to be a fellow shareholder with you in NSC.

    Thanks for dropping by!

    Best regards.

  69. My only exposure to railways is ARII. It’s a nice little small cap who decided to start leasing their railcars instead of selling them, and watched profits skyrocket. Their dividend history is very short, but I think the reinvented business model with multiple-year leases and servicing contracts will help stabilize the earnings in a very cyclical industry.

  70. Everybody needs products moved from 1 place to another. I have been watching UNP for a while, but just never pupled the trigger. Just too many things going on to keep up with everything. I think you made a nice choice with that one. Although it might go lower, the long term prospects are very promising. Good luck.

    Keep cranking,

    Robert the DividendDreamer
    AKA — Seeking Dividends

  71. Justin,

    I hope ARII works out fantastically for you. Not a business I follow at all, but I’m sure you did your due diligence there. May they pay you growing dividends for many, many years. 🙂

    Cheers!

  72. Robert,

    We’ll see how it goes. I can’t imagine UNP not doing extremely well over the next few decades, but anything is possible. That said, they’ve stood the test of time about as well as any company I can think of. There’s the chance that expensive projects could turn up, but that then would probably just set them up for a long growth runway.

    Thanks for stopping by!

    Cheers.

  73. Nice move here Jason, I’ve been wanting to pull the trigger ever since you highlighted them in the recent watchlist. I see these trains all the time around LA and want to own them alongside you. The growth over the last decade has been phenomenal and exposure to rail seems a must for any income investor. Excellent write up, thank you for sharing!

  74. Ryan,

    Owning a chunk of UNP sure will make sitting there and waiting for a train to cross a lot easier, that’s for sure. 🙂

    The growth over the last decade has been pretty phenomenal. I don’t expect that to continue, but I think even a drop of 2/3 would still provide a pretty compelling investment case here. We’ll see how it goes!

    Cheers.

  75. Jason,

    Good buy again. You always pull the trigger on the right companies at the right time. Yield on NSC looks a bit better, but you pay for the growth at UNP. I’m thinking of buying soon as I get some money saved up 🙂

    Cheers

  76. zenfund,

    Thanks so much. I try to pick the best company at the best valuation at any given moment, but sometimes I’m off. However, I’ve regretted very few investments over the last five years. I’ve been fortunate in a lot of ways, but I think that also speaks to the robustness of the strategy. 🙂

    NSC is a great pick here as well. I already have a large investment in Norfolk, though. Otherwise, I would have taken a pretty good look at it.

    Thanks for stopping by!

    Best regards.

  77. Some high quality companies there! One more question – why do you choose Emerson Electric instead of General Electric? Just wondering, because I was thinking about investing in GE the other day 🙂

    Cheers!

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