Time for Another Performance Check

For some background on the idea of a Performance Check, and for the XIRR function used for the calculations, please see my first post in this series.

The series continues with a look at another dividend-paying stock from my Portfolio (this is now the 19th overall).  My last Performance Check was just last month, when I examined my performance for Quest Diagnostics (DGX), which provided a solid compound annual growth rate of 14.23%.  I’ll take a similar performance from the company I’ll be checking next, but I’m hoping the results are even better.

Today, I’ll be checking my performance for Union Pacific (UNP).  UNP is part of the Industrials sector, and the Road & Rail industry.

 

Here are some details on the company from Union Pacific’s own website…

“UNP is one of America’s leading transportation companies.  Its principal operating company, Union Pacific Railroad, is North America’s premier railroad franchise, covering 23 states across the western two-thirds of the United States, providing a critical link in the global supply chain.

Union Pacific serves many of the fastest-growing U.S. population centers, operates from all major West Coast and Gulf Coast ports to eastern gateways, connects with Canada’s rail systems and is the only railroad serving all six major Mexico gateways.”

 

 

As of the end of 2020, UNP’s rail network included over 32,000 route miles.  UNP offers transportation for such varied products as grain, fertilizers, coal and sand, food and refrigerated products, and petroleum.  UNP also transports construction products, industrial chemicals, plastics, forest products, metals and ores, as well as finished automobiles and automotive parts.

The company was founded in 1862, and is headquartered in Omaha, Nebraska.  It has over 31,000 employees, and has annual revenues on the order of $20 billion.

 

UNP entered my Portfolio late in 2015.  As you’ll soon see, dividend growth and price appreciation have been solid since I initiated my position.

Let’s check out the first part of that winning combination by examining the historical dividend growth for UNP…

 

 

In the first half of the 2000s, UNP had a tough time establishing any consistent dividend growth.  However, starting in 2007, dividend growth got rolling, which is a bit surprising given the onset of the Great Recession shortly thereafter.

It appears there was a hiccup in the dividend growth story in 2016, but this was only due to UNP shifting its dividend payment dates in early 2015 (shortly before I initiated my position).  This led to what seemed to be an extra dividend payment showing up at the end of 2015.  So, 5 dividend payments in 2015.  This negatively affected the most recent 5-yr. dividend growth rate due to what appeared to be a dividend decline from 2015 to 2016.

However, this does not seem to have affected the dividend growth streak for UNP, as all sources I’ve seen show the current dividend growth streak to be at 14 years and counting.  The dividend growth streak for UNP will reach 15 years if it continues to pay out its current dividend through the end of 2021.

During the pandemic, UNP chose to forego a dividend raise, which led to a muted dividend growth percentage in 2020.  However, earlier this month, UNP resumed its double-digit dividend raises and delivered a 10.31% raise.

The payout ratio for UNP sits a little under 45% if you factor in their annual dividend of $4.28/sh. and their consensus current year EPS estimate of $9.55/sh.

 

My Personal Performance for UNP

Below is a capture of the spreadsheet I keep with my UNP cash flows, and the calculated XIRR (through 5/22/21).  Compared to my five legacy Portfolio holdings (PG, RPM, AFL, PEP & JNJ), the table for UNP is small, due to its shorter holding period and small number of transactions.  With UNP being a relatively new Portfolio position (about 5 1/2 years), I don’t have a large amount of data/time to factor into the return calculated in this Performance Check.  Therefore, as I move forward in the near-term, large price changes can have a significant impact on my annualized return.

Here’s a note with regard to the possible ‘Type’ column entries: EOY Value = End Of Year Value, Dividend = a dividend that was not reinvested (a cash outflow), Options = income from writing options against the shares (another cash outflow).

The duplicate EOY Value entries at the end of each year (one negative, one positive) do not affect the cash flow, and can be thought of as boundary markers, allowing me to make the individual yearly return, and the annualized total return calculations.

 

 

I started my UNP position on November 10, 2015 with 50 shares at a price of $84.69/sh.  Only once since then have I added to my position, and that was early the next year after the price had dipped a bit.  That was in April, 2016 when I added another 25 shares at a price of $78.29.  As a result of the minimal transactions I’ve had with UNP, my table of entries is rather basic.

If you rule out my negative performance from UNP to finish out 2015, I’ve seen nothing my positive returns from UNP each year.

Ever since initiating my position, I’ve been holding my shares and reinvesting my dividends.  Those reinvested dividends have resulted in my position growing a shade over 9.4 shares, and my position currently stands at 84.412 shares.

 

The following price chart provides another helpful way to view the performance of UNP.  It shows the stock price change since my initial purchase on 11/10/2015.

Short of the dips to finish out 2015 and 2018, and the decline that came with the pandemic, it’s been a fairly steady climb with UNP.  There’s plenty to like on this price chart.

As of 5/22/21, UNP is up year-to-date for me, climbing 6.85% so far.  While this is currently behind the S&P 500 performance in 2021, I’m happy with what UNP has gained so far this year.

 

 

The yield for UNP (as of 5/22/21) stands at 1.93%.  This is a bit below its 5-yr. average yield of 2.07%.  It’s also less than my average Portfolio yield of 2.27%.  With UNP’s dividend growth over the years, my yield on cost for the stock is 4.80%.

UNP is one of my top 10 Portfolio stocks.  In terms of value, UNP is currently my 7th largest position in my Portfolio (out of 52 positions).  It currently has a value weighting in my Portfolio of 3.30%.

My dividend weighting for UNP is lower, at 2.81%, making it the 12th best dividend payer in my Portfolio.

All UNP dividend payments I’ve received since my position was started have been reinvested.

My current investment in UNP is $6,195.75.  My cost basis, which includes $1,324.00 in reinvested dividends, is $7,519.75.

Meanwhile, the current value is $18,698.95, which reflects a capital gain (on paper) of $11,179.20.

The annualized total return ends up being 22.65%, covering the entire holding period from my initial purchase on 11/10/2015, through 5/22/2021.

 

Summary

With UNP delivering a 20%+ annualized return for me, it’s obvious that the stock had a strong debut in my Performance Check table (see below).

While the current yield for UNP is below my Portfolio average, it’s still above that of the S&P 500.  Also, it’s sub-2% yield has been more than compensated for with outstanding price gains, and double-digit dividend growth.

Assuming UNP can continue with steady price gains and ample dividend growth, I have long-term plans to keep the stock in my Portfolio.

Since UNP is already a top 10 stock for me, I won’t be looking to add any shares unless I find good value in the share price.  Currently, we are far from that level.  So, expect my UNP share count, at least for the short-term, to only grow through dividend reinvestment.

 

Performance Check Comparisons

Bringing the returns for all my other Performance Check stocks up-to-date allows for the comparison in the table below.

The Performance Check stocks I’ve reviewed in the past are: PG, RPM, AFL, PEP, JNJ, AL, GILD, TROW, FAST, WPC, O, GNTX, QCOM, XOM, SWKS, ITW, BLK & DGX.

 

The table’s rightmost column below shows the year of my initial purchase for each stock, just to provide some detail with regard to how many years are part of the annualized return.

Also note, XOM was sold due to poor performance, so annualized returns are no longer provided for that stock.

 

 

UNP makes its initial appearance in my Performance Check table with an impressive annualized return of 22.65%.  This puts it in 2nd place overall, behind only the 24.93% annualized return from BlackRock (BLK). when comparing to the other stocks I’ve reviewed thus far.

 

With regard to movement in the table since my last Performance Check about 5 weeks ago, 13 stocks improved on their annualized returns, while only 4 declined compared to last time.  I continue to see good performances in 2021, as it seems most stocks are moving higher between reviews.

T. Rowe Price Group (TROW) was able to climb higher and join the 20% club.  However, Skyworks Solutions (SWKS) turned around and left the 20% club after just joining for the 1st time during the last review.

With UNP joining the 20% club in its debut, that brings the total number of stocks from the table providing a 20%+ annualized return to 7 (a new high).

 

For the 2nd month in a row, the biggest mover to the upside was BLK, this time increasing its annualized return 0.98%, from 23.95% to 24.93%.  Close behind when it came to annualized return gains was TROW, rising 0.95%, from 19.28% to 20.23%.

Since my last Performance Check, the biggest mover to the downside with regard to annualized returns was SWKS, which sank 2.70%, from 20.03% to 17.33%.  Also falling significantly was Qualcomm (QCOM), which slipped 2.30%, from 24.92% to 22.62%.  As you can see, Tech names haven’t fared too well for me recently.

Still, as a group, my Performance Check stocks continue to deliver tremendous returns.  UNP only boosted my Portfolio performance, too.

Only one stock in the group shows an annualized return of less than 8%, and that continues to be Gilead Sciences (GILD).  At least GILD saw an increase in its performance since my last check, moving up 0.72%, from 1.89% to 2.61%.  That’s two reviews in a row that GILD has moved in a positive direction.

 

On deck for my next Performance Check is VF Corp (VFC).  The stock has slipped in price in recent weeks.  Might that end up putting VFC near the bottom of my Performance Check table?  Find out next time!

 

Have you been holding a stock for a few years, but don’t have a good idea of the return the stock has provided for you?  It could be time for a Performance Check!  I look forward to your comments, as well as you sharing return numbers for any Performance Checks you’ve done.