Despite operating in very different transportation industry segments, Union Pacific (UNP) and Old Dominion Freight Lines (ODFL) are two unstoppable-looking dividend growers for investors to consider.

Whereas railroad behemoth Union Pacific moves massive amounts of goods across the Western United States, Canada, and Mexico, Old Dominion hauls smaller less-than-truckload (LTL) orders through its immense network across the U.S.

While the two stocks deliver their goods in wildly contrasting ways, they both provide incredible shareholder returns to investors through growing dividends and steady share repurchases.

Let’s delve deeper into these two transporters — and why I’m looking to buy their shares at today’s prices.

1. Union Pacific
Union Pacific operates over 50,000 miles of railway tracks, making it North America’s largest railroad stock. Its massive network of railroads across the western two-thirds of the U.S. give it a vast moat, making it virtually impossible for new competitors to enter the market.

Despite this dominant positioning, Union Pacific is trading 26% below its 52-week highs, hindered by rising inflation and higher fuel costs. Highlighting these headwinds, Union Pacific recorded revenue growth of 8% in the fourth quarter of 2022 but saw operating expenses jump by an alarming 14%.

Accounting for the majority of this increase in expenses were fuel costs that rose 43% compared to the prior year. While Union Pacific was able to pass these rising costs to its customers in the form of a 9% increase in fuel surcharges, its operating ratio deteriorated by 3.6 percentage points compared to Q4 of 2021.

Although operating expenses grew faster than revenue for the quarter, the company’s earnings per share (EPS) remained flat, thanks to its consistent share repurchases. These share buybacks are nothing new for Union Pacific, which has seen its shares outstanding drop by 35% over the past decade.

This declining share count and the company’s rising dividend help create stability for investors in what would otherwise be a somewhat cyclical stock. Having raised its 2.5% dividend for 16 consecutive years, Union Pacific only uses 45% of its net income to fund its payouts. This manageable payout ratio leaves room for both capital expenditures as well as further share repurchases.

With a price-to-earnings (P/E) ratio of 18, Union Pacific is near the cheapest its been since the March 2020 crash. Thanks to this discounted valuation, the company’s moat, and track record of shareholder returns, I’m ready to buy shares over the next few weeks.

2. Old Dominion Freight Lines
Through its network of 255 service centers, less-than-truckload (LTL) specialist Old Dominion Freight Lines primarily focuses on next-day and second-day shipments for its industrial and retail customers.

Recording on-time rates above 99%, paired with a cargo claims rate below 0.2%, Old Dominion has quietly grown to account for a 7% share of North America’s $86 billion LTL industry. Cargo claims rates are crucial for shipping companies to keep low as they represent shipments that were lost, damaged, or incorrect.

Helped by annualized sales growth of 12% since 2002, the company’s stock has risen a staggering 31,000% over the same time. Best yet for investors, the company is showing no signs of a slowdown regarding this growth. While LTL tons only rose 1% in 2022, Old Dominion posted 19% revenue growth and an even better 37% spike in EPS.

Driving this incredible EPS growth was the company’s operating ratio improving from 73.5% to 70.6%, and a 4% decline in shares outstanding. This operating ratio is Old Dominion’s cost of goods sold and operating expenses as a ratio of sales — the lower the figure, the better.

As for the buybacks, these are nothing new for the company, which has steadily lowered its share count over the last five years.

Additionally, Old Dominion has raised its dividend for five consecutive years, including a 33% increase announced during its most recent quarterly earnings. While its 0.5% dividend yield is still relatively modest, it only amounts to around 10% of the company’s net income, leaving a long growth runway ahead.

With a P/E ratio of 29, Old Dominion will not appear on anyone’s value screeners. However, the company has posted 10 straight quarters with higher revenue and an improving operating ratio. On top of this, it has seen 10 consecutive quarters of double-digit EPS growth.

Thanks to this incredible performance, despite the challenging macro environment, I’ll happily pay a slight premium to own shares of this historical outperformer — especially as the U.S. economy slowly rounds back into form.

— Josh Kohn-Lindquist

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Source: The Motley Fool