Yahoo Finance Do These 3 Checks Before Buying United Parcel Service, Inc. (NYSE:UPS) For Its Upcoming Dividend
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that United Parcel Service, Inc. (NYSE:UPS) is about to go ex-dividend in just 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase United Parcel Service's shares on or after the 10th of May, you won't be eligible to receive the dividend, when it is paid on the 30th of May.
The company's next dividend payment will be US$1.63 per share. Last year, in total, the company distributed US$6.48 to shareholders. Calculating the last year's worth of payments shows that United Parcel Service has a trailing yield of 4.4% on the current share price of US$146.43. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for United Parcel Service
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. United Parcel Service paid out 94% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 96% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.
As United Parcel Service's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at United Parcel Service, with earnings per share up 4.7% on average over the last five years. Minimal earnings growth, combined with concerningly high payout ratios suggests that United Parcel Service is unlikely to grow the dividend much in future, and indeed the payment could be vulnerable to a cut.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, United Parcel Service has lifted its dividend by approximately 10% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Should investors buy United Parcel Service for the upcoming dividend? United Parcel Service is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, although at least earnings per share are growing somewhat. It's not that we think United Parcel Service is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Although, if you're still interested in United Parcel Service and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 3 warning signs for United Parcel Service (1 is a bit concerning!) that you ought to be aware of before buying the shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
