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United Parcel Service UPS management recently announced a 0.6% hike in its quarterly dividend payout. This transportation heavyweight, in its latest shareholder-friendly move, raised its quarterly dividend by a cent to $1.64 per share (annualized $6.56 per share).
The hiked dividend will be paid out on March 6, 2025 to shareholders of record as of Feb. 18, 2025. UPS offers a current dividend yield of 5.7% compared with the air freight and cargo industry’s 4.2%. The transportation company’s above-industry dividend yield is a huge positive for income-seeking investors. This highlights confidence in its cash flow and prospects.
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UPS has hiked its dividend five times in the past five years. This is encouraging, as stocks with a strong year-over-year dividend growth history often offer a greater scope of capital appreciation than simple dividend-paying stocks. UPS’ strong dividend track implies that it is less susceptible to large swings in the market and it acts as a hedge against economic or political uncertainty as well as stock market volatility.
Given this background, the question that naturally arises is whether investors should buy UPS stock at current levels. Let us delve deeper to answer the question.
UPS’ Buyback Program Lifts Confidence
In addition to cheering investors with regular dividend payments, UPS is active on the buyback front. In 2023, UPS’ board approved a share repurchase authorization for $5 billion. In 2024, UPS bought shares worth $500 million. For full-year 2025, UPS expects to repurchase shares worth $1 billion.
Strong cash flow generation is serving UPS well, allowing the company to remain committed to returning value to shareholders. UPS demonstrates financial strength with $6.3 billion in free cash flow in 2024. The company's annualized cash flow growth rate has been 2.8% over the past 3-5 years, which is in line with the industry average.
UPS Stock is Inexpensive Relative to Sector
United Parcel Service’s valuation is attractive at the moment. In terms of the forward 12-month price/sales ratio, UPS is trading at 1.09X, lower than the sector’s 1.87X. The reading is also below its median over the last five years. The company has a Value Score of B.
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UPS’ EPS Estimate Revisions Unfavorable
On Oct. 30, UPS announced its decision to reduce business with its largest customer, Amazon AMZN. To this end, UPS’ management announced that it had reached an agreement, in principle, with its largest customer to lower AMZN’s volume with UPS by more than 50% by June 2026.