UPS(UPS) ZACKS·2025-02-11 21:00Core 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 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 500 million worth of shares bought in 2024 and an expected 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 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].