Here's Why UPS Should Cut Its Dividend

Core Viewpoint - There is a strong case for UPS to consider cutting its dividend to better support cash flow generation and capitalize on growth opportunities [1][4][15] Financial Considerations - UPS's management previously projected $5.7 billion in free cash flow (FCF) for 2025, while the dividend payment is estimated at$5.5 billion, alongside $1 billion planned for share buybacks [2] - The potential inability to cover the dividend with FCF raises concerns, especially if management resorts to debt financing for dividends, which may not be financially prudent [3][12] Strategic Growth Initiatives - UPS is focusing on repurposing its network to handle higher-margin deliveries, which involves sacrificing some revenue for increased profitability [8][10] - The company is making strategic acquisitions in the healthcare sector, including a$1.6 billion deal for Andlauer Healthcare, to enhance its logistics capabilities [10][11] Return on Equity and Investment - By cutting the dividend, UPS could redirect resources towards investments that improve return on equity (RoE) and overall productivity [12][15] - Management aims to double healthcare revenue from $10 billion in 2023 to$20 billion by 2026, partly through acquisitions [13] Market Perception - A decision to cut the dividend could positively influence market expectations regarding UPS's long-term growth prospects, alleviating concerns over dividend sustainability [16]