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Will UPS Deliver a Higher Dividend Payout in 2016?

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Market cap

United Parcel Service’s (UPS) Class A shares are owned by its employees and retirees. Its Class B shares trade on the NYSE under the UPS ticker.

The company’s market cap as of August 1, 2016, was $94.7 billion. The stock’s closing price on the same day was $107.8.

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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, UPS’s dividend’s CAGR (compound annual growth rate) was 9.9%.

In 2Q16, UPS announced a quarterly dividend of $0.78 per share. This translated to an estimated $3.12 per share on an annualized basis in 2016. In 2Q16, the company paid dividends of ~$630 million, representing a rise of 6.8% per share over the same quarter last year.

Dividend yield

UPS has one of the highest dividend yields among its industry peers. UPS has a current dividend yield of 2.9%, much higher than rival FDX’s dividend yield of 0.99%. Other logistics providers C.H. Robinson Worldwide (CHRW) and Expeditors International of Washington (EXPD) have dividend yields of 2.5% and 1.6%, respectively.

All the above-mentioned logistics companies are included in the portfolio holdings of the iShares US Industrials ETF (IYJ).

Share repurchases

From 2000 to 2015, UPS has returned more than $58.0 billion to its shareholders. UPS generated $1.5 billion in free cash flow in 2Q16. In the same period, the company repurchased over 6.2 million shares for $620.0 million plus. On February 14, 2013, UPS approved a share repurchase authorization of $10.0 billion. It anticipates that it will repurchase ~$2.7 billion worth of shares in 2016.

Since UPS’s management is very upbeat about the company’s 2016 adjusted EPS guidance, investors can likely expect higher dividends to come.

In the next part of this series, we’ll go through Wall Street analysts’ estimates of UPS’s key financials.

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