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Should We Expect Higher Dividends from UPS in 2016?

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Market capitalization

United Parcel Service’s (UPS) Class A shares are owned by its employees and retirees. Its Class B shares trade on the NYSE (New York Stock Exchange). The company’s market capitalization as of April 29, 2016, was $93.1 billion. The closing price on the same day was $105.

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Dividend payments

United Parcel Service rewards its stockholders through regular dividends and share repurchases. The company has paid regular cash dividends since 1969. Since its IPO (initial public offering) in November 1999, the dividend growth’s CAGR (compound annual growth rate) is 9.9%.

In 1Q16, UPS announced a quarterly dividend of $0.78 per share. This translates into an estimated $3.12 per share on an annualized basis in 2016. In 1Q16, the company paid dividends of ~$670 million, representing a rise of 6.8% per share over the same quarter last year.

Dividend yield

UPS ranks among one of the highest dividend yields among its industry peers. It has a current dividend yield of 3.0%, which is much higher than rival FedEx’s (FDX) dividend yield of 0.61%. Other logistic providers such as C.H. Robinson Worldwide (CHRW) and Expeditors International of Washington (EXPD) have dividend yields of 2.4% and 1.5%, respectively.

UPS is part of the SPDR S&P Transportation ETF (XTN). This ETF holds 2.6% in the company.

Share repurchases

From 2000 to 2015, United Parcel Service has returned more than $58.0 billion to its shareholders. UPS generated $2.2 billion in free cash flows in 1Q16. The company also repurchased 6.8 million shares for approximately $680 million. On February 14, 2013, UPS approved a share repurchase authorization of $10.0 billion. It anticipates that it will repurchase approximately $2.7 billion of shares in 2016.

UPS management is very upbeat about its higher guidance of adjusted EPS (earnings per share) in 2016, so investors might be expecting higher dividends to come.

In the next part of the series, we’ll look at Wall Street analyst estimates for UPS’s key financials.

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