Recent buy: Union Pacific Corp

Last week I wrote a post about the question in which company to invest next. I got several good tips, thanks! In the end I went back and forth between Johnson & Johnson (JNJ) and Union Pacific Corp (UNP). So what's my reasoning with this purchase?

• I was not invested in any railroad company so far while I do have some healthcare exposure through BAX and to a lesser extent OHI.
• The railroad industry has high barriers of entry and consequently a big moat. Railroads and trains have various competitive advantages over trucks (e.g. cost, speed, safety, environment) and will remain an important part of the future transport sector.
• Current yield of UNP (2%) is lower than JNJ's yield (3%), however UNP's dividend growth in recent years outpaced JNJ's growth rate.
• UNP's payout ratio (in terms of %EPS) is only 37% which leaves ample room for future dividend growth, especially with estimated EPS growth of ~14% in the next 5 years (analysts opinions...).
• JNJ's payout ratio is slightly higher at 54% and estimated EPS growth rate is also lower at ~5% for the next 5 years.
• The P/E-ratio is comparable (~18x)
• Obviously JNJ's balance sheet is a fortress, but UNP's debt/equity ratio of 0.6 is not too bad either.
• Total return in the last 10 years for UNP is a whopping 22% per year. Even half of that would be just fine by me! JNJ's total return in the last 10 years is only 6% per year. This gap is much smaller if you take into account the risk adjusted rate of return (JNJ is a much 'safer' investment in terms of beta). But still UNP is much more of a growth company than JNJ.

All in all I decided to open a position in Union Pacific Corp. My purchase of 15 shares add roughly €30 to my annual forward dividend income.