UPS(US:UPS) The Motley Fool·2025-10-12 10:20Core Viewpoint - United Parcel Service (UPS) is facing challenges that may lead to a potential cut in its dividend, despite being one of the highest-yielding stocks in the S&P 500 with a yield of 7.6% [1][2]. Financial Performance - UPS' stock price has decreased by 31.3% year-to-date and 47.7% over the past three years, contributing to the high dividend yield [2]. - The company generated only $742 million in free cash flow (FCF) in its latest quarter, which is insufficient to cover its dividend obligations [7][9]. - For the full year 2025, UPS plans to allocate $5.5 billion for dividends and has already completed $1 billion in share buybacks [6][14]. Strategic Initiatives - UPS is reducing its package delivery volumes with Amazon by 50% by June 2026, aiming to improve margins despite the expected decline in revenue [4][15]. - The company is implementing cost-cutting measures, expecting $3.5 billion in expense reductions through its network reconfiguration and Efficiency Reimagined initiatives [5]. Management and Market Conditions - UPS management has missed guidance for three consecutive years, indicating a need for better adjustment to market conditions [11][12]. - There are concerns regarding the sustainability of the dividend, as analysts forecast free cash flow of only $4.6 billion in 2025, which is below the dividend commitment [14][16]. Long-term Outlook - Despite current challenges, UPS has good long-term growth prospects by focusing on higher-margin deliveries and investing in technology [15].