United Parcel Service (NYSE: UPS) stock currently offers a compelling 4.7% dividend yield. Based on that yield, an investment of $21,276 in the stock would buy almost 157 shares that would generate roughly $1,000 in annual income in 2024. That’s a pretty decent return all by itself.
There’s also potential for UPS’ stock to appreciate if this multinational shipping & receiving and supply chain management company hits its three-year earnings targets as laid out in its late March investor day presentation.
UPS’ dividend
Investing in a stock for its dividend makes no sense unless the dividend is sustainable and the stock and dividend have the potential to rise. The good news is that UPS appears to have both qualities.
The Wall Street analyst consensus calls for earnings per share of $8.23 in 2024, which should easily cover the annual per-share dividend of $6.52. These figures represent a payout ratio of 79%, dropping to 66% in 2025 based on Wall Street estimates for earnings of $9.82 and the current dividend per share.
Management aims to get that ratio to 50%, but it has rejected the idea of cutting the dividend. In fact, management is looking to increase that dividend as part of its commitment to growth. UPS has increased its dividend consecutively for the last 15 years.
As such, investors who bought $21,276 worth of stock in 2024 can expect to generate more than $1,000 in income from UPS stock in 2025.
UPS’ growth prospects
The key to the three-year earnings targets and growing the dividend is the company’s recovery from a difficult period characterized by costly labor contract disputes and declining delivery volumes. In addition, management is investing in smart facilities and automation to keep costs in check while growing deliveries in targeted areas like healthcare and small businesses. A recovery in delivery volumes from a stronger economy will help UPS and ensure the earnings can carry on growing the dividend.
All told, UPS is a good option for investors looking for income.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.
Want $1,000 in Dividend Income? Here’s How Much You Have to Invest in UPS Stock to Get It was originally published by The Motley Fool
