The railroad industry has been a bellwether of U.S. economic health, since the Golden Spike joined the rails of the First Transcontinental Railroad in 1869, at Promontory Summit, Utah Territory.
Railroads enjoyed a mini-boom that coincided with the economy's rebounding from the 2008 Great Recession through 2014. But the fall of commodity and energy prices sent the industry tumbling. Union Pacific (UNP) is the likely survivor of a ruthless shakeout about to hit the industry. The stock also is among a class of safe, high-dividend payers that belong in your income portfolio.
U.S. freight railroads collectively have invested about $550 billion in their rail networks since 1980, including $115 billion over the past five years, according to the Association of American Railroads. The work has included new tracks and facilities, and upgrades to bridges and tunnels. This massive amount doesn't include the money spent to modernize locomotives to make them safer and more fuel-efficient.
Foremost among potential rail mergers, Canadian Pacific Railway is courting a resistant Norfolk Southern. This month, Canadian Pacific announced that it would force a shareholder resolution urging Norfolk's board to negotiate a merger. The proposed deal has the aggressive support of activist investor Bill Ackman.
Union Pacific has demonstrated its ability to survive long-term. It was one of the original railroads ceremoniously connected in 1869.
Union Pacific's rail network comprises nearly 32,000 miles linking Pacific Coast and Gulf Coast ports, with major rail hubs in the the Midwest and eastern U.S. Founded in 1862 and headquartered in Omaha, Neb., it is a barometer for overall economic growth. But lately, times have been trying for the company.