United Parcel Service (NYSE:UPS) is a top logistics company in the world but due to worsening economic conditions and global tariffs, its shares have been in a tailspin this year. Since January, UPS’ stock is down more than 30% and its trading at a 52-week low. The selloff has been so extreme that its yield is now up to around 7.5%, which is far higher than typical.
For dividend investors, this can mean a lot of recurring income. For example, to collect $1,000 in annual dividends, you would need to invest just $13,333 into the stock. The big question for investors, however, is whether that payout is indeed safe, or if it’s too good to be true.
Currently, the stock’s payout ratio is right around 100%, which doesn’t instill a lot of confidence in the dividend. But with UPS focusing on reducing costs, a cut to the payout may not necessarily be imminent. In two of the past three quarters, UPS has generated sufficient free cash flow to support its quarterly dividend, which costs it around $1.3 billion.
It’s not all gloom and doom for UPS dividend, but a lot may depend on the success of its cost reduction efforts and how strong global demand proves to be; UPS has struggled to generate much growth in recent periods.
With the stock trading at 13 times its trailing earnings and UPS being a trusted name in logistics, it could make for a good buy for the long haul, even if it does have to trim its payout in the future. While that isn’t necessarily inevitable at the moment, it’s a scenario investors should consider when thinking about investing in UPS stock because the dividend isn’t entirely safe.
