UPS vs. CPA: Which Dividend-Paying Transportation Stock to Bet on Now?

Core Insights - United Parcel Service (UPS) and Copa Holdings (CPA) are both focused on paying dividends to shareholders despite economic uncertainties, showcasing a shareholder-friendly approach [1][2] - Dividend-paying stocks provide stable income and act as a hedge against economic uncertainty, making them attractive for wealth creation [2] Company Performance - Copa Holdings significantly increased its quarterly dividend payout to $1.61 per share (annualized: $6.44) from 82 cents per share (annualized: $3.28) [3] - UPS raised its quarterly cash dividend to $1.64 per share (annualized: $6.56) from $1.63 (annualized: $6.52) [3] - UPS's elevated dividend payout ratio raises concerns about the sustainability of its dividends, while CPA's lower payout ratio suggests long-term sustainability [4][6] Financial Metrics - UPS's free cash flow has declined from a high of $9 billion in 2022 to $6.3 billion at the end of 2024, barely covering its dividend payments of $5.4 billion [5][6] - In contrast, CPA's expected earnings per share (EPS) for 2025 is projected to rise by 14.3% year-over-year, with positive trends in estimates [10][14] Price Performance - CPA has performed well in the stock market with an 18.1% year-to-date gain, while UPS has seen a decline in double digits [8] - UPS's weak price performance is attributed to revenue weakness due to geopolitical uncertainty and high inflation affecting consumer sentiment [11] Operational Efficiency - Copa Holdings maintains operating margins of over 20%, with expectations to end 2025 with an adjusted operating margin in the 21-23% range [13] - UPS's operational flexibility is hindered by its high dividend payout, limiting its ability to invest in growth [6] Valuation Comparison - CPA trades at a forward earnings multiple of 6.03 with a Value Score of A, while UPS has a forward earnings multiple of 13.28 and a Value Score of B [18] - The Zacks Consensus Estimate for UPS indicates a 4.1% year-over-year decrease in sales for 2025, contrasting with CPA's expected sales increases of 4.5% and 8.1% for 2025 and 2026, respectively [16][14] Conclusion - CPA's lower dividend payout ratio, better price performance, and positive earnings estimate revisions position it as a more favorable investment compared to UPS [20]