Right Time to Buy UPS Stock After Recent Dividend Hike?

Core Viewpoint - United Parcel Service (UPS) has announced a 0.6% increase in its quarterly dividend, reflecting confidence in its cash flow and future prospects [1][2]. Dividend and Shareholder Returns - The quarterly dividend is raised to $1.64 per share, with an annualized payout of $6.56 per share, and will be paid on March 6, 2025, to shareholders of record as of February 18, 2025 [1][2]. - UPS offers a current dividend yield of 5.7%, significantly higher than the air freight and cargo industry's average of 4.2%, making it attractive for income-seeking investors [2]. - UPS has increased its dividend five times in the past five years, indicating a strong year-over-year growth history that often leads to greater capital appreciation [3]. Share Buyback Program - UPS has a share repurchase authorization of $5 billion approved in 2023, with $500 million worth of shares bought in 2024 and an expected $1 billion in buybacks for full-year 2025 [5]. Financial Performance - UPS generated $6.3 billion in free cash flow in 2024, with an annualized cash flow growth rate of 2.8% over the past 3-5 years, aligning with the industry average [6]. - The company's valuation is attractive, trading at a forward 12-month price/sales ratio of 1.09X, lower than the sector's 1.87X and below its median over the last five years [7]. Challenges and Risks - UPS announced a reduction in business with its largest customer, Amazon, which will lower volume by more than 50% by June 2026, leading to a lackluster revenue guidance for 2025 [10][11]. - The company expects revenues of $89 billion for the current year, significantly below the Zacks Consensus Estimate of $94.6 billion [11]. - UPS faces headwinds from geopolitical uncertainty, high inflation, and increased labor costs due to a deal with the Teamsters union, which will raise wage and benefit costs at a 3.3% compound annual growth rate for the next five years [12][13]. - The stock has underperformed compared to its industry and rival FedEx over the past year, reflecting negative sentiment and downward revisions in earnings estimates [14][16].