Railroads are an industry looked favorably upon by many investors, including Warren Buffett. He’s perhaps the most famous investor in the world, and he acted on his fondness for railroads by purchasing Burlington Northern Santa Fe, in a $34 billion deal in 2009.
There’s good reason to love railroads. They’re seen as major economic bellwethers for the variety of industrial goods they transport. In essence, as the railroads go, so goes the nation.
One of the most well-known of the publicly traded railroad operators is Union Pacific Corporation (NYSE:UNP), which has richly rewarded its investors for many years. Is Union Pacific Corporation (NYSE:UNP) the best railroad to buy today? Or is there an industry competitor more deserving of your investing dollars?
An industry outperformer in a difficult 2012
Last year was a very difficult one for the railroad industry. The economic and political uncertainties presented by the frustratingly slow recovery in the U.S. and the election served as an anchor on economic activity.
However, Union Pacific managed to perform admirably last year. While most railroads saw stagnating volumes and profits, Union Pacific outperformed its U.S. rivals. 2012 was actually the most profitable year in Union Pacific’s 150-year history. The company reported 23% growth in diluted earnings per share, with EPS coming in at $8.27 per share.
In addition, the good times kept up in the first quarter of 2013. Union Pacific racked up another profit record, seeing another 13% growth in diluted EPS.
Making things even better, Union Pacific isn’t shy about sharing its success with its owners. The company has paid uninterrupted dividends on its common stock for 113 years in a row. And, Union Pacific has actually raised its dividend on an annual basis for many years. Last year, the company gave its shareholders a 15% pay raise to its current distribution of $2.76 per share annualized.
An overview of industry competitors
Of course, there are many publicly-traded railroad stocks to choose from. Industry peers include CSX Corporation (NYSE:CSX) and international competitor Canadian Pacific Railway Limited (USA) (NYSE:CP).
CSX Corporation (NYSE:CSX) is a smaller railroad than Union Pacific, holding a market value about $50 billion less than Union Pacific Corporation (NYSE:UNP). At the same time, however, CSX Corporation (NYSE:CSX) has a large operational footprint. The company serves major markets in the eastern United States and has access to over 70 ocean, river and lake port terminals along the Atlantic and Gulf Coasts, the Mississippi River, the Great Lakes and the St. Lawrence Seaway. In total, CSX operates a rail network of approximately 21,000 miles.