The Board of United Parcel Service, Inc. (NYSE:UPS) announced that it will pay a dividend on September 5. Investors will receive $1.63 per share. The dividend yield on this basis is 5.2%, which is still above the industry average.
Check out our latest analysis for United Parcel Service
United Parcel Service’s dividend is well covered by earnings
We like to see solid dividend yields, but that doesn’t matter if the payment isn’t sustainable. Before this announcement, the company’s dividend was much higher than its earnings. It will be difficult to maintain this level of payout, so we aren’t confident that this will continue.
Next year, earnings per share are expected to grow by 67.2%. If the dividend follows recent trends, we estimate the payout ratio to be 69%, which would give us a sustainable dividend payout despite the currently quite high dividends.
United Parcel Service has a solid track record
The company has a long history of paying stable dividends. The annual payment over the past 10 years was $2.48 in 2014 and $6.52 in the most recent fiscal year. This represents a compound annual growth rate (CAGR) of approximately 10% per year over that period. So dividends have been growing pretty quickly and, what’s even more impressive, they haven’t experienced any notable declines over that time period.
Dividend growth could be difficult to achieve
Investors in the company will be happy to have been receiving dividend income for some time. Earnings have grown at 2.2% per year over the past five years, which is admittedly a bit slow. So the company has struggled to grow its earnings per share, but still pays out 106% of its earnings. This gives the company limited scope to increase the dividend in the future.
United Parcel Service’s dividend does not look sustainable
Overall, we don’t think this company is a good dividend stock, even though the dividend hasn’t been cut this year. We can’t deny that the payments have been very stable, but the very high payout ratio is a little concerning. Overall, we don’t think this company has what it takes to be a good dividend stock.
Market movements show how highly a consistent dividend policy is valued compared to a more erratic one. Despite the importance of dividend payments, however, they are not the only factors our readers should consider when evaluating a company. To this end, United Parcel Service 3 warning signs (and 1 which is a bit unpleasant) that we think you should know about. Is United Parcel Service not quite the opportunity you have been looking for? Check out our Selection of the highest dividend stocks.
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