The Zacks Transportation - Air Freight and Cargo industry stands to benefit from higher shipping rates. Even though economies have reopened, the demand for online shopping is high among consumers. The buoyant demand scenario is pushing up shipping rates, which augurs well for industry participants.
Despite the robust demand environment, industry players face quite a few challenges. Supply-chain disruptions and higher fuel costs are likely to keep the bottom line of the companies in this industrial cohort under pressure.
The industry has risen 11.7% over the past three months, compared with the S&P 500 Index’s 5.9% appreciation and 12.6% growth of the broader Zacks Transportation sector.
Among the air freight and cargo players, United Parcel Service, Inc. and FedEx Corp. announced dividend hikes even during the coronavirus-induced uncertainty in 2021, thus highlighting their pro-shareholder stance. Dividend-paying stocks are hugely favored by investors, especially in uncertain times as the current one.
Stocks that have a strong history of dividend growth belong to mature companies, which are less susceptible to large swings in the market, and act as a hedge against economic or political uncertainty as well as stock market volatility. At the same time, they offer downside protection with their consistent increase in payouts.
Additionally, these companies have strong fundamentals. These include a sustainable business model, a long track of profitability, rising cash flows, good liquidity, a strong balance sheet and some value characteristics.
How to Pick Stocks With Solid Dividend Payouts?
In order to choose some of the best dividend stocks from the aforementioned industry, we have run the Zacks Stock Screener to identify stocks with a dividend yield in excess of 2% and a sustainable dividend payout ratio of less than 60%. Each of the two stocks mentioned below carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
UPS: Headquartered in Atlanta, GA, United Parcel provides letter and package delivery, transportation, logistics, and related services. Currently, it has a market capitalization of $153.03 billion.
UPS pays out a quarterly dividend of $1.52 ($6.08 annualized) per share, which gives it a 3.50% yield at the current stock price. This company’s payout ratio is 47% of its earnings at present. The five-year dividend growth rate is 10.11%. (Check United Parcel Services’ dividend history here).
UPS’ strong free cash flow-generating ability is encouraging, supporting its shareholder-friendly activities. In the first nine months of 2022, UPS generated a free cash flow of $8,472 million. Robust free cash flow generation by UPS is a major positive and is leading to an uptick in shareholder-friendly activities.
Notably, UPS paid dividends worth $3,842 million and repurchased shares worth $2,194 million in the first nine months of 2022. UPS aims to reward its shareholders to the tune of $8.2 billion in the current year through dividends ($5.2 billion) and share buybacks ($3 billion).
United Parcel Service, Inc. dividend-yield-ttm | United Parcel Service, Inc. Quote
FedEx: Based in Memphis, TN, FedEx provides transportation, e-commerce, and business services in the United States and internationally. Currently, it has a market capitalization of $44.69 billion.
FDX pays out a quarterly dividend of $1.15 ($4.60 annualized) per share, which gives it a 2.66% yield at the current stock price. This company’s payout ratio is 25% of its earnings at present. The five-year dividend growth rate is 10.18%. (Check FedEx’s dividend history here).
We are impressed by FedEx’s efforts to reward its shareholders through dividends and buybacks. During the first half of fiscal 2023, FedEx repurchased shares worth $1,500 million (higher than $748 million worth of shares bought in the first half of fiscal 2022) and paid dividends worth $598 million (higher than $400 million dividend payout in first-half of fiscal 2022).
During fiscal 2022, FedEx repurchased shares worth $2.248 billion (against no share buybacks in fiscal 2021) and paid dividends worth $793 million (higher than the $686 million dividend payout in fiscal 2021). Such shareholder-friendly moves indicate the company’s commitment to creating value for shareholders and underline its confidence in its business.
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