Last update on 2024-06-27

United Parcel Service (UPS) - Dividend Analysis (Final Score: 5/8)

Discover the insightful analysis on United Parcel Service (UPS) dividend performance, evaluated using an 8-criteria scoring system. Final Score: 5/8.

Short Analysis - Dividend Score: 5

We're running United Parcel Service (UPS) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Based on an 8-criteria scoring system, United Parcel Service (UPS) achieved a dividend score of 5, indicating a mixed performance with several strengths and few concerns. UPS's dividend yield is significantly higher than the industry average, making it an appealing option for income investors. Over the past 20 years, the company has demonstrated a commendable average dividend growth rate of about 11.15%, surpassing the desired threshold of 5%. However, UPS's average annual payout ratio of 96.85% is quite high, suggesting that a large portion of earnings is devoted to dividends, which may not always be sustainable. Despite this, recent EPS and dividend coverage ratios have improved, showcasing stronger financial health. The cash flow coverage has also seen a remarkable positive trend, especially in recent years. UPS has maintained stable and increasing dividends for over two decades, meeting the consistency criteria and emphasizing its commitment to shareholders. Additionally, UPS has paid dividends for over 25 years and has demonstrated reliable stock repurchases over the past 20 years, further highlighting its focus on returning value to shareholders.

Insights for Value Investors Seeking Stable Income

For investors looking for solid dividend income and stability, UPS is generally a strong candidate due to its high yield, consistent dividend growth, and long history of paying dividends. However, the high payout ratio could be a concern for long-term sustainability. Investors should monitor the payout ratio and ensure it does not compromise future earnings and growth potential. Overall, UPS is worth considering for dividend-focused portfolios, but with a watchful eye on its payout and coverage ratios to ensure continued financial health.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

dividend yield is a financial ratio that shows how much dividends are paid out relative to the stock price.

With a current dividend yield of 4.1214%, United Parcel Service (UPS) stands significantly higher than the industry average of 2.27%. Historically, UPS's dividend yield has shown an overall upward trend from 1.2341% in 2003 to its current value in 2023. This positions UPS as an attractive income investment compared to its peers. The stock price close values over the last 20 years have shown appreciable growth, supporting the rise in dividend per share to 6.48 USD in 2023 from 0.92 USD in 2003. Particularly notable is the surge in dividend yield from 1.9035% in 2021 to 4.1214% in 2023, correlating with the company’s robust financial performance during these years. These statistics suggest a positive trend for dividend yield, enhancing UPS’s allure for dividend-seeking investors.

Average annual Growth Rate higher than 5% in the last 20 years?

Dividend Growth Rate measures the annualized percentage rate of growth in the dividends paid to shareholders. This criterion is key as it signifies the company's capacity to consistently enhance shareholder value and indicates financial health and profitability. A rate higher than 5% indicates a robust and growing dividend, appealing to dividend-focused investors.

Examining the past 20 years, except for the occasional drops and a couple of unprecedented zero values during economic recessions, UPS exhibited dividend growth in notable instances, especially in years like 2022 with a sharp 49.0196% surge. Despite fluctuating annually, an average dividend ratio of approximately 11.15% suggests a commendable upward trend. This pattern generally bodes well for investors looking for dividend reliability and growth, confirming a positive trend within this criterion.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio is important because it indicates the proportion of earnings paid out as dividends.

Over the past 20 years, United Parcel Service (UPS) has had an average payout ratio of 96.85%, significantly exceeding the benchmark of 65%. While lower payout ratios are typically seen as more sustainable, allowing companies to retain earnings for growth and cushion against downturns, UPS's high average payout ratio may suggest high dividend payouts relative to earnings, potentially reflecting unstable or over-leveraged financial health. Years like 2007 and 2012 with extraordinarily high payout ratios further tilt the average upward and signal potential periods of financial strain, indicating this trend is not favorable.

Dividends Well Covered by Earnings?

Dividends well covered by earnings involve comparing the earnings per share (EPS) to the dividends per share (DPS).

Assessing the coverage ratio between earnings per share (EPS) and dividends per share (DPS) over 2003-2023 for UPS, it's vital for dividend stability. Good coverage generally signifies sustainable dividend payments without jeopardizing financial health. At a glance, in 2007 EPS fell drastically to 0.3594 before recovering in subsequent years. Notably, the EPS to DPS coverage ratio in 2007 was aberrationally high at 4.674, indicating instability in earnings. Post-2007 figures improve, especially recent years: 2020 (0.276), 2021 (0.458), and 2022 (0.829) showing stronger, albeit fluctuating, coverage, enhanced by significant EPS in 2020 (14.748). Plentiful earnings vis-a-vis dividends of late underscore robustness now. Trend, though uneven, is improving. Overall good for UPS’s near-term dividend assurances.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow means the company generates enough cash flow to cover dividend payments. This is crucial for the sustainability of dividend payments as it indicates that dividends are not being financed by debt, reducing financial risk.

From 2003-2007 and particularly in 2008 and 2017, UPS had poor cash flow coverage, even dipping into negative values in 2007 and 2017, reflecting difficult periods. However, trends improved dramatically post-2008 crisis with stabilization and eventually strong coverage peaking in 2023 at a coverage ratio of 1.057. The positive trajectory suggests UPS has enhanced its financial stability and ability to sustain or even grow dividends, indicating a favorable trend.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance.

United Parcel Service (UPS) has shown remarkable stability in its dividend payments over the past two decades. From 2003 to 2023, UPS consistently increased its dividend per share from $0.92 to $6.48. In 2021, there was a significant increase from $4.08 to $6.08, marking a jump of nearly 49%. Notably, there were no instances over this period where the dividend per share dropped by more than 20%. This consistent upward trend is a strong indicator of financial health and commitment to shareholders, making it an attractive option for income-seeking investors.

Dividends Paid for Over 25 Years?

Dividends paid over an extended period, typically over 25 years, indicate a company's stability and commitment to returning value to shareholders. Consistent dividend payments are a good indicator of financial health and operational consistency.

United Parcel Service (UPS) has evidenced a stable and increasing dividend payment trend for the last 25 years, starting from a dividend per share of $0.30 in 1999 to $6.48 in 2023. This consistent increase not only underscores the company's solid financial status but also demonstrates its commitment to rewarding shareholders. A steady upward trajectory in dividend payments over decades is a strong sign of robust earnings and a sound financial strategy. Thus, this trend is exceedingly positive for investors focusing on dividend stability.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases indicate the company's commitment to returning value to its shareholders. This is important as it can support share prices and signal confidence in the firm.

For United Parcel Service (UPS), the number of shares has decreased consistently over the last 20 years from approximately 1.14 billion in 2003 to around 859 million in 2023. This trend indicates a steady stock repurchase program, as shown by multiple years with reduced shares, particularly during 2005-2009 and 2011-2019, as well as recent years like 2022 and 2023. The average repurchase rate of -1.3826 reflects a moderate rate of buybacks annually. Such consistent repurchase programs are favorable as they enhance shareholder value by reducing the number of outstanding shares, which can lead to higher earnings per share (EPS) and signal confidence in the company's future. Consequently, UPS's stock repurchase strategy over the past two decades demonstrates its reliability and commitment to shareholders. This trend is generally constructive for investors.