Dividend Investor Portfolio #35: Safe Delivery
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Dear Investor,
Welcome to the 35th edition of TipRanks’ Dividend Investor Portfolio & Newsletter.
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Market-Moving News: November 18, 2024
Stock markets slipped to a weekly loss after the post-election rally fizzled out on profit-taking, future fiscal policy uncertainty, and cautious signs from the Federal Reserve. The S&P 500 (SPX) fell by 2.08% on the week, its third losing week out of the last four, and the Dow Jones Industrial Average (DJIA) declined by 1.24%. Meanwhile, the tech benchmarks Nasdaq Composite (NDAQ) and Nasdaq-100 (NDX) dropped by 3.15% and 3.42%, respectively.
Stocks lost ground mid-week after a slate of data reflected the continued resilience of the U.S. economy. While the CPI was in line with expectations, producer-prices inflation—both the headline number and the core index, which excludes volatile food and energy prices—was above estimates on an annual basis. In addition, October’s retail sales report, which included a large upward revision to the prior month’s data, reflected the persistent resilience of consumers, adding question marks over further Fed policy steps.
Jerome Powell’s comments last week indicated that policymakers are now on a more gradual path of monetary easing. The Fed Chair stated that the economy continues to show strength while the job market remains healthy, with the unemployment rate still well below historical averages. The head of the U.S. central bank added that “the economy is not sending any signals that we need to be in a hurry to lower rates,” sparking concern in markets that the Fed may not be cutting rates as much as previously expected. The odds of a rate cut in December plunged below 60%, after previously hitting recent peaks near 80% in futures trading.
The stock market’s loss of post-election momentum was exacerbated by the uncertainty surrounding policy issues in Trump’s second term. The various implications for corporate earnings were reflected by the wide dispersion of sector performances, with financial and energy stocks continuing upwards on the outlook for looser regulations and easier M&A approvals. On the other hand, healthcare stocks were the biggest losers last week following news that Trump has nominated Robert F. Kennedy, Jr. – a vaccine skeptic and a vocal critic of the pharmaceutical industry and public health programs – to head the Health and Human Services Department (HHS).
In addition, the hotter-than-expected PPI report drew investor attention to the incoming administration’s tariff policies, which may add to producer-price volatility in the short term as businesses adjust their supply chain management due to the risk of tariffs. However, tariffs are not necessarily inflationary, as their impact on consumers is industry-specific and generally doesn’t last for more than a few months. Thus, after companies adjusted for Trump’s tariff policies in 2018 and 2019, the prices of the tariffed goods actually fell. Still, the economic setup is different this time around, which muddies the outlook and injects additional uncertainty for investors and analysts to digest.
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This Week’s Quality Dividend Stock Idea
United Parcel Service, Inc. (UPS) is a global leader in package delivery and supply chain solutions. UPS operates an expansive logistics network, primarily in the U.S., with significant international reach. The company is renowned for its reliable shipping services and innovative logistics capabilities, offering a range of solutions for businesses and individuals alike.
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History of Logistics
United Parcel Service was founded in 1907 in Seattle, Washington. It began as a small messenger service known as the “American Messenger Company”. Over the decades, it grew into a logistics powerhouse, reshaping package delivery through strategic expansions and technological innovations.
A key turning point came in the 1970s when UPS expanded internationally, establishing its first operations outside the U.S. in Canada and Germany. This marked the beginning of its global footprint, which now spans more than 220 countries and territories. The company also made pivotal moves to streamline its services, including the introduction of Next Day Air in 1985, setting a new standard for expedited deliveries.
Mergers and acquisitions have played a significant role in UPS’s evolution. Notably, its acquisition of Mail Boxes Etc. in 2001—later rebranded as The UPS Store—strengthened its presence in retail and small business services. In recent years, the company has executed several strategic acquisitions to enhance its service offerings and expand its global footprint. These included the U.S. same-day delivery platform, Roadie; a time-critical logistics provider, MNX Global Logistics, which specializes in the healthcare and aviation sectors; and Happy Returns, a return service company for online purchases. Earlier in 2024, UPS announced the purchase of a leading Mexican logistics company Estafeta, which is expected to close by the end of the year.
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Delivering Innovation
The last few years have seen UPS pivot toward e-commerce and technology-driven logistics, fueled by the rise of online shopping. In 2019, it launched the Digital Access Program, forming alliances with leading e-commerce platforms to provide small and medium-sized businesses with integrated shipping solutions, leveling the competitive landscape.
Significant investments in automation and artificial intelligence have positioned the company to address evolving customer demands. The UPS Velocity facility exemplifies this approach, utilizing robots and AI-driven systems to optimize package sorting and delivery, resulting in increased efficiency and faster service. Alongside Velocity, UPS Supply Chain Symphony gives customers around the world a unified data platform that directly connects them to their supply chains.
UPS develops its proprietary tech in-house and also partners with numerous technology leaders, with one of the most important collaborations being with Google Cloud. UPS uses Google Cloud’s immense capacities to run its proprietary Business Intelligence Platform, which provides the most precise forecasting and the ability to see and control how packages move through UPS’s network. In addition, Google’s innovative data analytics and advanced technology help UPS optimize delivery routes and reduce its fuel consumption.
Fast Company recognized UPS as one of the “10 most innovative logistics companies of 2023,” praising the company for its complex healthcare innovations and last-mile delivery solutions.
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Growth of Connections
One of the key factors contributing to UPS’s rise to prominence has been its strategic collaborations with retailers. UPS has leveraged partnerships with major retailers and e-commerce companies to expand its business and strengthen its market position. These collaborations have allowed UPS to secure a consistent volume of shipments, adapt to changing consumer behavior, and innovate in last-mile delivery services.
The company maintains a multifaceted relationship with Amazon, characterized by both collaboration and competition. Historically, Amazon has been one of UPS’s largest customers, significantly contributing to its package volume and revenue. However, Amazon’s shift to in-house logistics infrastructure has led to a gradual reduction in its reliance on external carriers like UPS.
UPS responded by diversifying its client base and focusing on other sectors to mitigate the impact of reduced business from Amazon. The growth of online shopping, particularly through partnerships with major retailers, has significantly boosted UPS’s package volumes. Thus, UPS handles significant shares of Walmart’s and Target’s e-commerce shipments and provides logistics and delivery services for Best Buy’s online sales.
Importantly, UPS secured a significant contract to become the primary air cargo provider for United States Postal Service (USPS), replacing FedEx starting in September 2024. This partnership is expected to generate substantial revenue and strengthen UPS’s position in the domestic logistics market.
Moreover, UPS has invested in advancing its drone delivery services, particularly in the healthcare sector. Through its subsidiary, UPS Flight Forward, the company UPS has partnered with hospitals and medical facilities to transport time-sensitive medical products. For instance, in collaboration with AmerisourceBergen, UPS utilizes drones to deliver pharmaceuticals and medical supplies to various U.S. hospital systems. In addition, UPS provides specialized logistics for medical devices and has developed logistics solutions to deliver medical supplies and equipment directly to patients’ homes.
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Leading Global Courier
With a market capitalization of over $114 billion and annual revenues of almost $91 billion, UPS ranks #45 on the Fortune 500 list. It is the world’s largest courier company, leading the industry in both revenue and market capitalization, and far surpassing competitors such as FedEx and DHL.
UPS holds about 40% share of the U.S. domestic courier, express, and parcel market. It also holds a significant position in the global logistics and package delivery industry. Within the Transport & Logistics sector, UPS accounts for over 50% of the market share, just edging out its main competitor, FedEx, which holds about 48%. The U.S. market is responsible for 79% of UPS’s total annual revenues.
The company has been actively reducing its debt load, which has been cut by almost $7 billion since 2020 and continues to trend down. Although its net debt-to-equity ratio is still high, the debt is well-covered by operating cash flow, while interest payments are covered by EBIT many times over. Besides, S&P Global Ratings has recently affirmed UPS’s “A” debt rating, which reflects very little risk associated with the company’s liabilities.
In 2018, UPS initiated a transformation strategy, which aimed to leverage the company’s scale and institutionalize processes to capture efficiency gains and reinvest savings into priority growth areas. However, the COVID-19 pandemic and its aftermath reshuffled the deck for UPS.
During the pandemic, UPS experienced unprecedented growth in package volumes driven by the e-commerce boom. However, as economies reopened and consumer behavior normalized, e-commerce growth decelerated, leading to reduced package volumes. UPS 2023 business results were weak, hit by multiple headwinds such as higher labor costs, as well as inflation and elevated interest rates which impacted discretionary spending.
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“Better and Bolder”
In 2024, UPS announced its new strategic growth and productivity initiative “Better and Bolder,” which aims to create a growth flywheel in premium markets while driving higher productivity and efficiency. In addition, the company set ambitious three-year financial targets, including a 22% revenue growth (at midpoint) compared to the 2023 top line. The initiative also envisions reaching an adjusted operating margin of above 13% by 2026.
The Q3 2024 earnings report confirmed that UPS’s cost-saving measures and operational optimizations are beginning to positively impact its financial results, as the logistics giant returned to growth. The company reported consolidated revenues of $22.2 billion, marking a 5.6% increase from the same period in 2023. This all occurred despite a major divestiture completed during the quarter, the selling of Coyote Logistics business, which led to a reduction in revenues from the absence of Coyote’s operations.
In Q3, UPS’s consolidated operating profit surged by 22.8% year-over-year, while EPS reversed its previous declining trend with a 12.1% increase from Q3 2023. The company adjusted its full-year 2024 financial guidance to reflect the sale of Coyote, reducing revenue forecast by about $2 billion to approximately $91.1 billion. However, UPS raised its full-year adjusted operating margin forecast to 9.6%, up from the prior estimate of 9.4%, indicating improved operational efficiency.
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High Dividend Yield
United Parcel Service began paying dividends in 1999, following its initial public offering (IPO) in November of that year. Since then, UPS has consistently issued quarterly dividends to its shareholders. UPS has a 15-year streak of consecutive dividend increases, which grants it a Dividend Contender status.
Over the past five years, the company has increased its payouts at a CAGR of 11.4%, which accelerated to almost 17% in the past three years. UPS aims for a dividend payout ratio of 50% of its earnings. However, recent figures indicate a higher payout ratio, with estimates suggesting it could be over 80% in 2024.
The company has expressed intentions to “earn back into a 50% payout ratio over time” without cutting the dividend, i.e., through earnings growth. Analysts project that UPS’s EPS will grow at an average rate of 9.5% per year over the next few years. Though commendable, this also suggests a more moderate pace of dividend growth going forward. Still, UPS’s dividend yield is very high at 4.86%, triple the average for its industry, with the notable current payout outweighing slower future dividend growth.
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Total Return in Focus
In addition to dividends, UPS actively engages in share repurchase programs as part of its strategy to return value to shareholders. Although during the COVID-19 pandemic UPS temporarily suspended its share buyback program to preserve cash amid economic uncertainties, its Board of Directors authorized a new $5 billion share repurchase program in January 2023, signaling confidence in its financial performance.
In 2023, United Parcel Service repurchased approximately $3 billion worth of its shares, pausing buybacks in H1 2024 to prioritize financial flexibility amid economic uncertainties and operational challenges. However, UPS resumed its buyback activity in Q3 2024, repurchasing $500 million worth of shares.
UPS’s shares declined by about 9% over the past 12 months, underperforming its industry peers. The company’s stock performance was impacted by labor disruptions, slowdown in global trade, and operational adjustments, which, while aiming at long-term profitability, resulted in short-term revenue declines.
However, this underperformance has created an attractive entry point for long-term income investors, with the company’s current and forward P/E and P/S ratios offering significant discounts versus the average for the Industrial sector. UPS’s current P/E comes towards the bottom of the price scale for comparable peers in the industry.
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Investing Takeaway
UPS is a global leader in logistics, renowned for its expansive network and innovative solutions. With a strong dividend history, a 15-year streak of increases, and a high current yield, UPS remains a reliable income stock. The company’s dividend safety is supported by its strong cash flow generation, disciplined payout ratio goals, and robust financial management, including reducing debt and maintaining investment-grade credit ratings. Recent share buybacks and operational optimizations also signal a focus on shareholder value. Currently trading at discounted valuations, UPS offers long-term income investors a compelling mix of steady dividends and future growth potential.
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Dividend Investor Portfolio
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Portfolio News
¤ Ex-dividend date for Amgen (AMGN) is today, November 18th.
¤ Allianz SE (ALIZY) published strong quarterly results on November 13th. The German financial services giant reported a year-over-year operating profit increase of 13.6% on sustained momentum across its insurance segments. Insurance also helped drive the 17.3% growth in total business volumes. Meanwhile, shareholders core net income jumped by 23%, driven by a higher operating profit and improved non-operating results. Following the strong performance in the first nine months of the year, in full-year 2024 Allianz now projects to reach the upper half of previously given operating profit guidance range. In addition, the company has revealed the completion of its 1.5 billion euro share buyback program.
¤ EOG Resources (EOG) saw its price targets lifted by several prominent Wall Street brokerages, including Truist Financial, UBS, Jeffries, RBC Capital, Barclays, and others. This followed a robust Q3 report, which included top and bottom-line beats, a dividend hike, and the expansion of its share buyback plan.
¤ IBM (IBM) is reportedly in talks with Amazon’s AWS cloud division for a potential deal worth roughly $475M over five years. If signed, the agreement would allow IBM to access Nvidia’s AI chips through AWS cloud service. In other company news, IBM has announced a partnership agreement with the Ultimate Fighting Championship (UFC). The deal is aimed at enhancing the viewing experience for UFC fans using IBM’s AI and data platform, watsonx. IBM has become the UFC’s Official Global AI Partner, marking the first time the UFC has included an AI-focused company in this marketing category. For IBM, the partnership with the UFC offers several strategic benefits, including brand visibility, global reach, showcasing watsonx capabilities, building new revenue streams, etc. Being the first AI company to partner with the UFC in this capacity sets a precedent and establishes IBM as a pioneer in integrating AI with sports media.
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Recent Trades
None at the moment, although we are constantly evaluating stocks for a possible addition to the portfolio. Stay tuned.
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Portfolio Attributes
| Dividend Portfolio Yield |
Expected Dividend Growth | Expected Annual Income |
| 3.84% | +9.46% | $4,976.56 |
| Yield-on-Cost Adjusted, Weighted |
Average Analyst 12-Month Growth Outlook | 10K Per Stock at the Time of Purchase |
Current Portfolio
| Name | EX-Dividend Date | Payment Date | Yield on Cost | Annual DPS |
| Automatic Data Processing (ADP) | Dec 06, 2024 | Jan 01, 2025 | 2.24% | $5.60 |
| Allianz SE ADR (ALIZY) | May 09, 2025 | May 28, 2025 | 5.67% | $1.49 |
| Amgen (AMGN) | Nov 15, 2024 | Dec 06, 2024 | 3.09% | $9.00 |
| BlackRock (BLK) | Dec 08, 2024 | Dec 23, 2024 | 2.56% | $20.40 |
| Edison International (EIX) | Dec 27, 2024 | Jan 31, 2025 | 4.82% | $3.12 |
| EOG Resources (EOG) | Dec 13, 2024 | Dec 30, 2024 | 3.95% | $3.64 |
| IBM (IBM) | Nov 12, 2024 | Dec 10, 2024 | 3.13% | $6.68 |
| JPMorgan Chase (JPM) | Jan 06, 2025 | Jan 31, 2025 | 2.86% | $5.00 |
| Kroger (KR) | Nov 15, 2024 | Dec 01, 2024 | 2.82% | $1.28 |
| LyondellBasell (LYB) | Nov 24, 2024 | Dec 04, 2024 | 5.27% | $5.36 |
| Philip Morris (PM) | Dec 20, 2024 | Jan 10, 2025 | 6.06% | $5.40 |
| Qualcomm (QCOM) | Nov 29, 2024 | Dec 13, 2024 | 2.25% | $3.40 |
| VICI Properties (VICI) | Dec 20, 2024 | Jan 04, 2025 | 5.19% | $1.72 |
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Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
